USD/JPY strengthened further, heading towards the 100 level, after the breach above 99 last week. Improvement in US economic data should keep speculations of the Fed's QE tapering in site, facilitating depreciation in Japanese yen. The recent pickup of Japan's inflation has been partly driven by depreciation of Japanese yen as well as the BOJ's monetary easing. Yet, if yen's weakness and improvement in inflation proved to be modest going forward, the central bank would need to consider additional easing.
Picking up from the trough of -0.5% y/y in March, core CPI turned positive at +0.7% in September and has gained +1.2% so far this year. The BOJ's refusal to implement monetary easing at the October 31 meeting was widely anticipated. It also reflected the central bank's confidence that inflation would continue to recover at a steady pace. The central bank's semi-annual "Outlook Report" maintained the inflation target of +0.7% for core CPI (excluding fresh food prices) for FY 2013, +1.3% in FY14 (excluding consumption tax rate hike) and +1.9% (excluding consumption tax rate hike) in FY15.
Japan continued to see net capital outflow in terms of security investments in October. It was reported yesterday that residents' buying of foreign bonds and notes exceeded the sales, for the 4th consecutive month, by 1.035 trillion yen in October. Despite the net sales of foreign equities, net purchase of securities was at a total of 8.61 trillion yen last month. Although the global economic outlook remained uncertain, Japanese investors still have vast interests in foreign security investment as the Japanese yen has been pressured by a number of issues including strength of the greenback on tapering outlook, recovery in Australian dollar amid RBA's upbeat economic prospects and additional BOJ easing threats.
For the coming weeks, it might be more difficult to establish fresh shorts in JPY positions as more US economic data reflecting the impacts of the October government shutdown would come under the spotlight. Meanwhile, investors would stay cautious ahead of corporate earnings announcements. Yet, renewed Japanese strength, if any, should be limited given the broad-based assumption of US and global economic recovery. Concerning the BOJ's stance, we expect it to continue monitoring changes in Japanese yen and inflationary expectations through early 2014.If the yen's depreciation and inflationary expectations proved to have benefited little from the exiting monetary easing, it would likely need to adopt further easing measures so as to raise the chance to meeting its 2% inflation target.
Picking up from the trough of -0.5% y/y in March, core CPI turned positive at +0.7% in September and has gained +1.2% so far this year. The BOJ's refusal to implement monetary easing at the October 31 meeting was widely anticipated. It also reflected the central bank's confidence that inflation would continue to recover at a steady pace. The central bank's semi-annual "Outlook Report" maintained the inflation target of +0.7% for core CPI (excluding fresh food prices) for FY 2013, +1.3% in FY14 (excluding consumption tax rate hike) and +1.9% (excluding consumption tax rate hike) in FY15.
Japan continued to see net capital outflow in terms of security investments in October. It was reported yesterday that residents' buying of foreign bonds and notes exceeded the sales, for the 4th consecutive month, by 1.035 trillion yen in October. Despite the net sales of foreign equities, net purchase of securities was at a total of 8.61 trillion yen last month. Although the global economic outlook remained uncertain, Japanese investors still have vast interests in foreign security investment as the Japanese yen has been pressured by a number of issues including strength of the greenback on tapering outlook, recovery in Australian dollar amid RBA's upbeat economic prospects and additional BOJ easing threats.
For the coming weeks, it might be more difficult to establish fresh shorts in JPY positions as more US economic data reflecting the impacts of the October government shutdown would come under the spotlight. Meanwhile, investors would stay cautious ahead of corporate earnings announcements. Yet, renewed Japanese strength, if any, should be limited given the broad-based assumption of US and global economic recovery. Concerning the BOJ's stance, we expect it to continue monitoring changes in Japanese yen and inflationary expectations through early 2014.If the yen's depreciation and inflationary expectations proved to have benefited little from the exiting monetary easing, it would likely need to adopt further easing measures so as to raise the chance to meeting its 2% inflation target.
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