BoJ fairly happy with recent developments - Westpac

Robert Rennie, Research Analyst at Westpac, suggests that the BoJ is likely to be fairly happy with recent developments.

Key Quotes

“Our Japan data pulse (WSURJADP Index on Bloomberg) sits close to 18 month highs; Tankan report rose for the first time in 6 quarters (large manufacturers) and the inflation pulse is set to rise in coming months as the ¥ slump and commodity price explosions feed into import prices.”

“With the BoJ continuing its ‘soft taper’ (see chart across) we see few if any compelling Japan-centric reasons to sell the ¥.”

“However, the FOMC hike/ ‘dot plot’ surprise adds more fuel to the US$ rally, and while the BoJ may add a cautious note to a ‘rapid ¥ slump’ next week, it’s hard to see much slowing the near term ascent in USD/JPY. We do however see 118/122 as strong resistance and expect the pace of $ strength to slow into that level. Thus we stick with our ‘buy on dips’ bias for another week.”