The JPY has been supported of late, mainly on the back of the notion that there is little scope for the BoJ to become more aggressive on monetary policy as soon as this week and unstable risk sentiment as related to domestic markets.
Elsewhere, PM Minister Abe’s adviser Hamada just recently stressed that there is a serious risk that raising the sales tax will halt the positive trend from Abenomics.
He added that the BoJ can wait until the first or second quarter of 2014 to add more monetary stimulus if needed. The government’s plan to increase the sales tax to 8% is therefore capping investors’ growth expectations to the detriment of domestic stock markets.
Going forward, we expect USD/JPY to remain capped for the time being.
Little scope for US yields to rise strongly in the short term, unstable risk sentiment when it comes to domestic equity markets as well as a low probability for the BoJ to become more aggressive soon are all factors supporting such a notion.
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