JPY: Downside risks - Westpac

Robert Rennie, Research Analyst at Westpac, suggests that they made a very clear point last week that “the Japanese authorities have done a great job of hitching the ¥ in a fairly tight 109 to 114 range to a sharply weakening US$”.

Key Quotes

“This slump in the US$ has dragged “our real effective measure of the ¥ model [to be] only 6% above the ‘record’ lows seen mid 2015, a clear indication of just how significant the depreciation has been”.”

“Thus, we argued, if the US$ did break lower, USD/JPY would have to shoulder more of this weight. Importantly, the Japanese authorities had done little to voice concerns about such a move.”

“Finance Minister Aso added some weight to this view, noting that the apparent goldilocks conditions for the ¥ being “not too strong or weak”.”

“We thus stick to our ‘downside risks’ view for USD/JPY for another week.”