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3 Mar 2015
USD/JPY over-valued, gains to remain muted – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, views that USD/JPY remains some 27% overvalued, and the current gains might remain muted, and only to be triggered to the upside by a strong catalyst – Fed rate hike.
Key Quotes
“USD/JPY did break above the 120.00 level yesterday but was unable to sustain that today with no obvious catalyst for the break back lower.”
“Japan equity markets were flat while PM Abe’s adviser, Etsuro Honda in an interview in the Wall Street Journal expressed some scepticism over the benefit of additional easing by the BOJ. Honda seemed to think the risk of fuelling overheating were high and hence even if inflation falls further, the BOJ should refrain from additional monetary easing.”
“There was some good news on the inflation front with cash earnings data showing a larger than expected increase. The annual gain in cash earnings in January was 1.3%, the same as in December – the 11th consecutive monthly increase.”
“Real earnings are still falling but the drop in inflation is resulting in the decline easing, which should open up the potential for a pick-up in spending going forward.”
“We suspect gains for USD/JPY will continue to be muted for now. The real driver this year is going to be on the US side.”
“Only once the markets become convinced in the timing of the first Fed rate increase will there be potential for a move higher.”
“Valuation remains very stretched in our view – our internal PPP model shows USD/JPY some 27% over-valued – a record stretch going back to the early 1980s. We need a strong clear catalyst like Fed rate increases to get USD/JPY moving higher again.”
Key Quotes
“USD/JPY did break above the 120.00 level yesterday but was unable to sustain that today with no obvious catalyst for the break back lower.”
“Japan equity markets were flat while PM Abe’s adviser, Etsuro Honda in an interview in the Wall Street Journal expressed some scepticism over the benefit of additional easing by the BOJ. Honda seemed to think the risk of fuelling overheating were high and hence even if inflation falls further, the BOJ should refrain from additional monetary easing.”
“There was some good news on the inflation front with cash earnings data showing a larger than expected increase. The annual gain in cash earnings in January was 1.3%, the same as in December – the 11th consecutive monthly increase.”
“Real earnings are still falling but the drop in inflation is resulting in the decline easing, which should open up the potential for a pick-up in spending going forward.”
“We suspect gains for USD/JPY will continue to be muted for now. The real driver this year is going to be on the US side.”
“Only once the markets become convinced in the timing of the first Fed rate increase will there be potential for a move higher.”
“Valuation remains very stretched in our view – our internal PPP model shows USD/JPY some 27% over-valued – a record stretch going back to the early 1980s. We need a strong clear catalyst like Fed rate increases to get USD/JPY moving higher again.”