To understand the Japanese Yen’s movement it is important to understand the term that is readily banded around as the reason for the currency’s depreciation, Abenomics. (See footnote explaining Abenomics)
On the 31st of January the Bank of Japan voted 5-4 surprising markets to increase its monetary base by 60 to 70 trillion Yen. The unprecedented move pushed the Nikkei to a 7 year high as USDJPY quickly depreciated.
Latest Abe Announcements:
-Sales tax hike delayed for 18 months
-Parliament to be dissolved on November 21st
Following the comments from Prime Minister Abe, USDJPY traded down from the recent high of 117 to 116.40. The rapid weakening has occurred at a time of recent US dollar strength adding momentum to the move. As the BoJ continues to attempt to weaken the Yen, as the US Federal Reserve is beginning to timetable tightening of monetary policy the move might have further to go. JP Morgan’s new target for the pair is 120, however their timeframe is slightly further than some individuals might expect with a conservative view of September 2015.
What is Abenomics?
Abenomics refers to the economic policies that have been implemented by the Prime Minister of Japan, Shinzō Abe. The three pivotal parts of his policy, is structural reforms, monetary easing and fiscal stimulus. The aim of Abenomics is to encourage private investment and to reverse the “excessive” appreciation of the Yen, while targeting a 2% inflation rate. The radical policies have involved negative interest rates, and rounds of economic stimulus (QE), with the latest announced weeks ago. The aim is to pull the Japanese economy into growth and to end the economic stagflation.