26 Nov 2015
JPY: Fundamentals painting rosy picture for JPY in 2016 – Morgan Stanley
FXStreet (Delhi) – Research Team at Morgan Stanley, suggests that after following a broad decline for the 3rd consecutive year, JPY has found its ground in 2015.
Key Quotes
“Although USD/JPY has continued to rally, JPY has appreciated against most majors. As a result, JPY's nominal effective exchange rate (JPMQJPY) has appreciated by 2.1% so far this year.”
“Fundamentals surrounding JPY have turned to be JPY-supportive in 2015 – 1) Japan’s current account surplus has increased significantly mainly due to a sharp decline in trade deficit. 2) Some central banks eased monetary policies while the BoJ has disappointed the markets without any actions. As a result, on an aggregate basis, rate spreads between Japan and other countries have shrunk. 3) JPY has been undervalued significantly.”
“In addition to the meaningful changes in fundamentals, politics has become JPY-supportive as well. At the moment, both the US and Japanese governments do not seem keen to see further USD/JPY appreciation.”
“In 2015, USD/JPY appreciation supported by wider US-Japan interest rate spread and JPY-selling from large outflows from Japanese foreign direct/portfolio investments have limited an upside of JPY in tradeweighted terms, but…”
“…we expect that wider US-Japan rate spreads will not lead further USD/JPY appreciation in 2016. If political impact on the currency reinforces, the correlation between US-JP rate spreads and USD/JPY will collapse as we saw in early 1990s.”
“Upward pressure on JPY from Japan’s balance of payments is expected to strengthen in 2016, mainly due to a further increase in current account surplus, slowdown in pensions’ foreign securities investments and corporates’ FDI.”
“In 2016, we expect JPY to appreciate against most of G-10 currencies including USD, meaning that the pace of JPY appreciation in trade-weighted terms will accelerate. We target USD/JPY at 115 for 1Q16, 117 for 2Q16, 113 for 3Q16 and 110 for 4Q16.”
Key Quotes
“Although USD/JPY has continued to rally, JPY has appreciated against most majors. As a result, JPY's nominal effective exchange rate (JPMQJPY) has appreciated by 2.1% so far this year.”
“Fundamentals surrounding JPY have turned to be JPY-supportive in 2015 – 1) Japan’s current account surplus has increased significantly mainly due to a sharp decline in trade deficit. 2) Some central banks eased monetary policies while the BoJ has disappointed the markets without any actions. As a result, on an aggregate basis, rate spreads between Japan and other countries have shrunk. 3) JPY has been undervalued significantly.”
“In addition to the meaningful changes in fundamentals, politics has become JPY-supportive as well. At the moment, both the US and Japanese governments do not seem keen to see further USD/JPY appreciation.”
“In 2015, USD/JPY appreciation supported by wider US-Japan interest rate spread and JPY-selling from large outflows from Japanese foreign direct/portfolio investments have limited an upside of JPY in tradeweighted terms, but…”
“…we expect that wider US-Japan rate spreads will not lead further USD/JPY appreciation in 2016. If political impact on the currency reinforces, the correlation between US-JP rate spreads and USD/JPY will collapse as we saw in early 1990s.”
“Upward pressure on JPY from Japan’s balance of payments is expected to strengthen in 2016, mainly due to a further increase in current account surplus, slowdown in pensions’ foreign securities investments and corporates’ FDI.”
“In 2016, we expect JPY to appreciate against most of G-10 currencies including USD, meaning that the pace of JPY appreciation in trade-weighted terms will accelerate. We target USD/JPY at 115 for 1Q16, 117 for 2Q16, 113 for 3Q16 and 110 for 4Q16.”