Forex Flash: USD/JPY eyes 92.00 by year-end amidst BoJ action – Westpac

FXstreet.com (Barcelona) - According to Global FX Strategist Sean Callow at Westpac, “We have run with a negative bias on USD/JPY for the last couple of weeks and several more weeks for EUR/JPY. However, versus the shopping list of policy we wanted to see from the BoJ in April, we would have to say we are impressed by what we see.” The BoJ is now targeting ¥140tn of JGBs on the balance sheet by end 2013 and ¥190tn by end 2014. The BoJ is targeting a doubling in the monetary base by end 2014.

This is a material push higher in terms of BoJ balance sheet and monetary base - indeed, monetary base will be doubled over the next two years. This has to be seen as a regime change for USD/JPY and we now switch our bias to buy.

“We admit to surprise that new BoJ chief Kuroda managed to beat very high expectations today. He has replaced the Asset Purchase Program with Quantitative and Qualitative Monetary Easing (QQME).” Callow notes. The BoJ will now aggressively expand the monetary base (cash plus deposits at the BoJ), by 45% this year and a further 35% in 2014. This equates to JPY5.5trn per month, $58 59bn and roughly double the pace of Fed QE as a share of the economy. Given this positive surprise, USD/JPY 92 looks more like a solid base than a target - even with our qualms over USD.