the yen is more than 1% stronger because
traders are less convinced that the Bank
of Japan will on Friday unveil a big
package of fiscal and monetary stimulus
well one bank that has been consistently
predicting the BOJ would actually not do
anything this week is mufg and with us
from mufg is Derek halpenny its European
head of global markets research Derek
the problem for the BOJ is whether
they've got the tools to do the kind of
thing they need to do what where are
they on that well I think the timing is
hugely important now as you can see in
terms of the scale of quantitative
easing and the buying of jgbs it's been
huge and therefore they need to be very
very careful in terms of the timing of
when they announce any extension of that
so our view is that they're going to
remain very very cautious perhaps what
they want to see is more steps taken on
the a bionic side of policy in Japan and
therefore they may wait until we have
further details of fiscal stimulus and
hopefully some other reform measures in
regards to the third arrow of abenomics
and then perhaps later in the year maybe
at the October meeting that would be a
more opportune time to extend
quantitative easing dollar yen it's been
it's been weakening its strengthening
recently and now it's again today
weakening what's been driving it let's
have a look at our next chart which
which illustrates this well certainly
you know there if you look at nominal
interest rate spreads that you know
that's the very quick way in which dolly
intends to respond so the US data has
been strengthening and perhaps tomorrow
when we get the Fed statements there'll
be an upgrade on the economy after the
labor market has picked up two year
yields have pretty much in the United
States to year to year years have pretty
much reversed the brexit drop right and
that helps lift dollar yen so that so
that's one element but this the next
element which our third child shows is
it actually it's more from the Japan
side isn't it yeah like we're wary of
putting too much emphasis on the nominal
interest rate differential and really as
you can see during abenomics it wasn't
really nominal yield spreads
drove dalian higher it was real interest
rate spreads because I've I nomics
lifted inflation expectations in Japan
the problem since the beginning of this
year is that abenomics has been
unraveling inflation expectations have
plunged and actually on a five-year
five-year inflation swap basis turned
negative earlier this month so real
yields have been rising in Japan and
therefore that has helped to lift the
Japanese yen and that stronger Japanese
yen is our final chart shows is actually
creating a big current account surplus
isn't yet indeed like in terms of what
obviously if you have a surplus of this
side the exporting of capital on the
financial account is even more important
to try and weaken your currency and if
you have rising real yields domestically
that's creating problems for encouraging
both households and corporates to invest
abroad or what's been happening is the
investment income on assets abroad more
of that money is being converted back
into Japanese yen and that's helping to
lift the N and just finally Derrick and
when you say there might be an action in
by the BOJ say in October so where will
the end be by end of year well we still
feel that perhaps even by then the
action might not be aggressive enough
and we're looking at the influences that
I've just pointed out as keeping the M
on stronger flooding through the
remainder of this year so we could be at
levels at around 100 or even below by
the time we get to the end of the year
Derek halpenny thanks very much