USD/JPY: Further appreciation pressures from markets - Rabobank

Analysts at Rabobank expect further appreciation pressures on USD/JPY, from markets’ reconsideration of Trump’s chances of success in reflating the American economy.

Key Quotes

“Geopolitical tensions on the back of South Chinese Sea troubles and North Korean missile testing add to these pressures. And were growth in China to disappoint, governor Kuroda will be searching his pockets for spare coins to throw in the game.” 

“Amidst these challenges, the crucial question then is, will domestic factors do their work in raising inflation? Will wage rises, so hoped for by Prime Minister Abe, provide a lasting push to cost inflation? And will domestic demand pick up sufficiently? Although the labour market has been tightening consistently over the last few years and unemployment has reached a level of only 3%, wage pressures have remained an unreliable factor to count on. Improvements in wage dynamics seem to have come to a halt recently and even their current growth level is not something Abe can boast of being a great success.” 

“Hopes are that pressures in the more flexible market for part-time workers will finally translate into higher wages across the board. But whether those hopes will be realised remains to be seen. Meanwhile and unsurprisingly, households’ contribution to economic growth remains modest. All in all, the Bank of Japan will not have to look far to continue to find justification for its ultra-accommodative stance. But for proof that it’s working, the BoJ may still have to search harder.”