JPY: Fiscal-monetary policy mix moves more supportive – ING

The Japanese Yen (JPY) is starting to show a little strength on the crosses. Helping that has been the shift in the fiscal-monetary policy mix, ING’s FX analyst Chris Turner notes.  

USD/JPY can withstand the strong USD trend

“Driving the former has been local politics, where the Liberal Democratic Party (LDP) has had to bring the Democratic Party for the People (DPP) into the governing coalition and accede to the DPP's policy demands of an increase in the lower thresholds for income tax. Along with other measures, this is seen as a $250bn fiscal stimulus package and is a reminder that no such package will be coming in Germany – at least until federal elections are held in late February.” 

“At the margin, Japanese fiscal stimulus is encouraging the view that the Bank of Japan will hike in December after all. Nearly 15bp of a 25bp hike is now priced. ING expects a 25bp hike. Looser fiscal and tighter monetary policy is usually a supportive mix for a currency and should continue to pressure EUR/JPY, for example, lower.”

“It may also help USD/JPY to withstand the strong dollar trend and a further period of consolidation in the 153.50-155.50 range may be due.”