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21 May 2013
Flash: Are we getting to a point of excessive yen weakness? - Nomura
FXstreet.com (Barcelona) - Following a recent trip to speak with Japanese investors, Nomura Strategist Jens Nordvig notes that USD/JPY has broken 100 and it is natural to ask whether you can get too much of a good thing.
He adds that many academic analysts have argued that fair value for USDJPY is around 95 (the argument also used during the election campaign), but meanwhile, there has been evidence of a shift in the local press, which is starting to focus more on the potential negative side effects of a weaker yen now that the corporate sector has already achieved some meaningful relief.
That said, Nordvig continues to note that the policy framework is very clear. It is a framework of aggressive domestic reflationary policies, but not a framework of FX targeting. Hence, the FX rate is a fall-out from other policies (including global forces) and it seems unlikely that there will be any attempt to micro-manage the currency. He finishes by commenting that, “Specifically, I did not detect any concern with levels above 100. In fact, I consistently got the feedback that there really would be no major concerns about the USD/JPY level before perhaps 120 or 125.”
He adds that many academic analysts have argued that fair value for USDJPY is around 95 (the argument also used during the election campaign), but meanwhile, there has been evidence of a shift in the local press, which is starting to focus more on the potential negative side effects of a weaker yen now that the corporate sector has already achieved some meaningful relief.
That said, Nordvig continues to note that the policy framework is very clear. It is a framework of aggressive domestic reflationary policies, but not a framework of FX targeting. Hence, the FX rate is a fall-out from other policies (including global forces) and it seems unlikely that there will be any attempt to micro-manage the currency. He finishes by commenting that, “Specifically, I did not detect any concern with levels above 100. In fact, I consistently got the feedback that there really would be no major concerns about the USD/JPY level before perhaps 120 or 125.”