17 Dec 2014
JPY implication: Oil in focus – BAML
FXStreet (Barcelona) - According to the Research Team at Bank of America-Merrill Lynch, BoJ Governor’s take on recent oil price decline and inflation expectations will be of prime focus in the FX market in its meeting, further expecting any additional easing to be off the table for now.
Key Quotes
“As we head into the central bank meeting with the BoJ expected on hold, the subdued global risk sentiment and near-term technicals probably weigh over the US$/¥, with the election now behind us.”
“One of the FX market’s interests would be the BoJ's and Governor Haruhiko Kuroda’s take on the recent decline in oil price and inflation expectation. Our economists note the Fed and the BoE would “look through the temporary drop in headline inflation” in the absence of secondround effects.”
“Obviously, it was not the case for the BoJ on 31 October. In its statement, the BoJ justified its additional easing measure partly as a preemptive move to counter a risk of delay in “conversion of deflationary mindset” resulting from a temporary weakness in demand and the decline in crude oil prices, even though “the decline in crude oil prices will have positive effects on economic activity” from a long-term perspective”.”
“The preemptive nature of additional easing has had a strong signaling effect, which is a key background of the massive JPY sell-off afterwards.”
“Additional easing is probably off the table for some time as our economists argue above and we may not see the deep-dive discussion on the oil price in the statement, but we certainly expect questions surrounding this issue at Kuroda’s press conference.”
“While we do not envisage this meeting to be a key near-term driver for JPY, Governor Kuroda’s communication regarding the oil price development would be important for JPY while the crude oil price remains under pressure and, in particular, if the lower oil price becomes more permanent than temporary.”
Key Quotes
“As we head into the central bank meeting with the BoJ expected on hold, the subdued global risk sentiment and near-term technicals probably weigh over the US$/¥, with the election now behind us.”
“One of the FX market’s interests would be the BoJ's and Governor Haruhiko Kuroda’s take on the recent decline in oil price and inflation expectation. Our economists note the Fed and the BoE would “look through the temporary drop in headline inflation” in the absence of secondround effects.”
“Obviously, it was not the case for the BoJ on 31 October. In its statement, the BoJ justified its additional easing measure partly as a preemptive move to counter a risk of delay in “conversion of deflationary mindset” resulting from a temporary weakness in demand and the decline in crude oil prices, even though “the decline in crude oil prices will have positive effects on economic activity” from a long-term perspective”.”
“The preemptive nature of additional easing has had a strong signaling effect, which is a key background of the massive JPY sell-off afterwards.”
“Additional easing is probably off the table for some time as our economists argue above and we may not see the deep-dive discussion on the oil price in the statement, but we certainly expect questions surrounding this issue at Kuroda’s press conference.”
“While we do not envisage this meeting to be a key near-term driver for JPY, Governor Kuroda’s communication regarding the oil price development would be important for JPY while the crude oil price remains under pressure and, in particular, if the lower oil price becomes more permanent than temporary.”