Lee Hardman, Currency Analyst at MUFG, notes that the yen has continued to remain on a softer footing in the Asian trading session with USD/JPY holding just below key resistance from its 55-day moving average at around the 106.35-level.

Key Quotes

“The yen is likely to remain on the defensive heading into the upcoming BoJ monetary policy meeting scheduled to take place on the 29th July. Market expectations have continued to build that the BoJ will unveil further monetary easing which was evident in a Reuters poll released overnight which revealed that 23 out of 27 analysts polled now expect further easing measures compared to around two thirds of those polled in last month’s poll. Of those analysts who do not expect further BoJ easing this month, one expects further easing in September, two in October, and one expects it some-time next year. It highlights that our analysts in Tokyo are in the minority in not expecting further BoJ until later this year. As a result, we believe that building BoJ easing expectations could be disappointed supporting our view that the yen will remain at stronger levels.

The Reuters poll revealed as well that eighty percent of analysts expect the BoJ to ease via a combination of measures such as cutting rates deeper into negative territory and increasing asset purchases such as exchange traded funds. Even if the BoJ delivers further easing this month, we remain sceptical that easing measures will be aggressive enough to sustain a re-weakening of the on the yen in the current external environment of lower global yields and weak global growth. The market is likely getting ahead of itself in expecting Japan to implement helicopter money soon although policy does appear to be heading in that direction.

Japan’s ability to re-weaken the yen through intervention continues to be limited by US opposition. Bloomberg has reported comments overnight from a US Treasury official reiterating that FX markets aren’t out of line with fundamentals which does not justify intervention from G20 countries. The official clarified that the G20 meeting this week will include discussions on the near-term and long-term implications of Brexit and review potential risks to the global economy. The recent easing of yen strength is helping to ease pressure on Japan to intervene although we remain unconvinced that it will prove sustainable expecting USD/JPY to fall back towards the 100.00-level.”