USD/JPY Fundamental Forecast – September 6, 2016

The USD/JPY is down 0.25 points to 103.66 as the yen lost a bit of its safe haven appeal after Chinese services PMI printed higher than expected. Bank of Japan governor Kudora spoke this morning and remained fairly positive that the economy was starting to show small signs of improvement.

He also said the central bank should not rule out the possibility of considering new ideas or taking drastic measures if necessary to achieve its 2% inflation target.

“Even within the current framework, there is ample room for further monetary easing … and other new ideas should not be off the table,” Kuroda said in a seminar.

“There may be a situation where drastic measures are warranted even though they could entail costs,” he said. “The central bank should always prepare policy options to address such situations.”

Kuroda said he does not share a growing market view that monetary policy has reached its limit, saying that the key would be to weigh the costs and benefits of each policy option.

“There is no free lunch for any policy,” he said. “That said, we should not hesitate to go ahead with additional easing as long as it is necessary for Japan’s economy as a whole.”

Kuroda sought to defend his “extremely powerful” negative interest rate policy, raising the chances of a further rate cut in September. The policy has come in for heavy criticism from Japanese banks and the public.

The governor said there has been no damage to the supply of bank credit so far, but the BoJ has to consider the long-term trade-off between a healthy financial system and a lower yield curve.

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 September 6, 2016

Government Bond Auctions

Date Time Country Auction

Sep 06 11:00 Austria Holds bond auction

Sep 06 11:30 UK 1.5% 2026 Gilt

Sep 06 11:30 Germany Holds I/L bond auction

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