EUR/JPY Fundamental Forecast – July 20, 2016

The EUR/JPY opened the day down 35 points to 117.23 as the euro traded flat but the Japanese yen gained ahead of the BoJ meeting next week on hopes that the bank will hold fire taking cues from banks across the globe. The ECB will be meeting this week.  Kuroda’s Mario Draghi moment is coming back to haunt him as he stands at a fork in the monetary road. He can take the route back toward orthodoxy, scale back the BoJ’s QE bonanza and admit defeat. Or he can go the other way – heed Bernanke’s warning that deflation may be with Japan for a long time to come and read from the 1930s playbook. (Barrons)

In three years, it’s clear Kuroda’s monetary assault was in vain. Deflationary pressures persist, wages have barely budged, corporate and household confidence is waning and traders roll their eyes when Kuroda insists he has the B0J the tools to succeed. It might, if Prime Minister Abe acted to reduce structural impediments to growth, innovation and greater productivity. For Abe, this is a show-don’t-tell moment. He must stop talking about loosening labor markets, inspiring greater risk taking, more international management styles and championing women and do something.

Nevertheless, there’s more Kuroda could be doing – just as Bernanke reportedly said in Tokyo. The main speculation ahead of the BoJ’s July 28-29 meeting is going all-in with a shift toward “helicopter money.” In other words, by opening the monetary floodgate even wider and issuing the above-mentioned perpetual bonds. Now, some argue that Kuroda & Co. is already there. “Helicopter money has been pouring down in Japan,” analysts at Morgan Stanley argued in a July 14 note. They point out that data over “the last few months show an acceleration of BoJ purchases” above and beyond the official $750 billion per year pace.

FxEmpire provides a wide variety of analysis on a daily, weekly and monthly basis ranging from our exceptional technical analysis as well as our in-depth fundamental analysis along with our daily news and market updates. To get the best understanding of each asset it is important to review the short term daily analysis with the longer term monthly reports. To get email notification when each of these are posted please sign up for our daily newsletter.