Profit taking combined with a burst of “haven” buying during Monday’s risk asset sell-off pushed the yen higher at the start of the week. It didn’t last.
The yen slipped again on Tuesday as the reflation trade kicked back in.
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Every man and his dog seems to think that it is only a matter of time before the dollar moves above 100 yen.
Well, not every man.
Currency analysts at HSBC have outlined in a note several reasons why the yen is not a one-way bet.
First, sterling, dollar and euro performances suggest a weak link between QE and currency declines as such monetary action is considered economically positive.
Next, the BoJ’s QE, in terms of relative central bank balance sheet size, is not especially large.
Besides, says HSBC, “the prospective moves in the size of relative monetary bases could justify . . . a USD-JPY rally of about 15 per cent, not the 28 per cent surge witnessed since October 2012”.
In addition, there are practical issues related to the BoJ’s strategy, not least whether competitors would push back against what some may see as another battle in the currency wars.
