JPY: Guided by the fundamentals – BBH

Analysts at BBH point out that the US dollar's pre-weekend attempt to recover against the yen was stymied by comments from the Bank of Japan’s Kuroda in Davos as Kuroda claimed that finally, it was getting close to the 2% inflation target. 

Key Quotes

“This turned the dollar around from the highs of the day (~JPY109.75) and sent it below the JPY108.50 low seen before Trump's dollar comments.   The core rate, which the BOJ targets for December was reported several hours earlier unchanged at 0.9%, unchanged from November.  While it is considerably better than where it was at the end of 2016 (-0.2%), it is still not quite halfway towards the target and Kuroda made it clear after the BOJ meeting earlier in the week, that he was continuing with the strategy and course he had set.   He was speaking to an international audience.  It was a way of saying the policy is working not that patience and vigilance weren't needed anymore.”  

“The low from last September was near JPY107.30 and this appears to be the next target on a close of the JPY108.50 area.   We do not expect to hear much of a pushback from Japanese officials.   We suspect as long as the move is orderly and broad-based, not just yen strength but dollar weakness, Japanese officials will accept a somewhat firmer yen.”