JPY: All or nothing - Commerzbank

Dr Jörg Krämer, Chief Economist at Commerzbank, suggests that after three years of Abenomics, the development of the economy and inflation in Japan is disappointing.

Key Quotes

“The Bank of Japan (BoJ) is increasingly losing credibility after pushing back the inflation target date by one quarter again at the beginning of the year.

Furthermore, the introduction of a negative interest rate has not had the desired effect on the currency. Due to higher risk aversion since the beginning of the year and the weaker USD lately, the JPY is in demand as a safe haven and has therefore appreciated against the USD.

However, a weaker currency is likely to be the only effective way for the BoJ to achieve its inflation target as neither consumption nor wages are picking up noticeably.

The likelihood that the BoJ will take further measures to weaken the JPY effectively is therefore high. The timing is uncertain though.

As long as the FX market doubts that the BoJ is prepared to implement additional measures, JPY is set to appreciate.”