BoJ likely to reinforce its dovish policy stance - Rabobank

Jane Foley, a senior FX strategist at Rabobank, says that given the BoJ’s struggles to boost inflation, it is possible that the BoJ could tomorrow reinforce its dovish policy position. 

• “Given that the JPY is inclined to be tuned to international events and geopolitics rather than the domestic economy, this may not be sufficient to push USD/JPY significantly higher.
• A Reuters’ poll conducted between June 5 and 17 indicates that 20 out of 39 forecasters now expect that the next policy move from the BoJ will bring more stimulus. There is no strong consensus as to what form this will take.  Options such as increased buying of ETFs and Japanese real estate investment trusts are thought to be on the table in addition to a further lowering of interest rates.
• Although it is a majority view that the next BoJ move will result in more policy accommodation, the Reuters survey suggests that there remains a significant minority that view the next move as a hike.  This may seem out of kilter with about-face guidance of the Fed and the ECB in recent months.  It is possible that commentators see little space for the BoJ to ease further given the enormity of its current QQE programme and the difficulties the banking sector has experienced in recent years from the flatness of the yield curve.
• On the margin, dovish policy statements from the BoJ tomorrow should undermine the outlook for the BoJ. However, due to the JPY’s function as a safe haven, its performance tends to be more influenced by the general tone of risk appetite. As a consequence, the outlook for USD/JPY is likely to be more heavily bias by whether or not the market see the potential for some sort of resolution in the trade wars between the US and China and potentially by news surrounding Iran.  In view of the current geopolitical risks in addition to slowing world growth we see risk of USD/JPY edging towards the 108.00 level on a 3-month view.”