Opportunities to Trade Yen in Line With Risk Sentiment and the Global Equity Markets, With China Slowdown Continuing to Create Uncertainty

LONDON, Oct. 28, 2015 /PRNewswire/ -- Traders will have opportunities to trade yen in line with risk sentiment regarding Japan's quantitative easing programme and the global equity markets - with the slowdown in the Chinese economy continuing to be a significant market mover. 

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"We can look to buy the yen if stock markets weaken rapidly during any given session. Conversely, any future hints or announcements that the BOJ will increase their current bond-buying program will see the yen depreciate," explains Jarratt Davis, Head of FX at Smile Global Management.

The most recent statement on monetary policy was released October 7. In its statement, the monetary policy board said that the Japanese economy continued to recover moderately and was likely to continue doing so. The MPB said that the core CPI was likely to continue to be approximately zero due to the decline in energy prices.

"Both exports and output have been impacted by the slowdown in the emerging markets. It noted that private consumption has been resilient but capex remains weak. Again, the Bank refrained from alluding to any increase of bond buying. However, if inflation does not pick up in the months ahead then the market will place more emphasis on the chance of the BOJ increasing the monetary base further," adds Jarratt Davis.

"The prospect of further easing became more apparent when, on September 10, lawmaker and Abe-adviser, Yamamoto, stated that the BOJ needs to increase asset purchases by at least ¥10 trillion per annum and that the October 30 meeting would be an ideal opportunity to make such an announcement. The market will be monitoring the upcoming meetings closely."

Final GDP for the second quarter, released September 8, was revised slightly higher to -0.3% from -0.4%. Although a positive revision, and better than expectations, this still equates to a contraction of 1.2% in annualised terms.

"This shows the BOJ that the economy is still yet to see any meaningful effects from QE. The BOJ for months has been adamant that the poor economy data will soon pick up. However, this is yet to materialise; it's becoming difficult to say that Japan is in a recovery. This poor GDP print along with the Chinese devaluation, which puts deflationary pressures on Japanese imports, adds weight to the case that the BOJ will ease policy further," adds Jarratt Davis.

"In July, the BOJ for the first time began focusing more on CPI excluding both fresh food and energy as its preferred gauge of underlying inflation. The traditional 'core' CPI readings previously only had fresh food stripped out. By focusing on price changes minus the downward pressure of the oil, the BOJ suddenly becomes a lot closer to their inflation target of 2%.

"On October 16 comments from the BOJ's Kuroda, claimed Japan's exports and output are slowing, but trend for consumer prices is improving. He also said the BOJ expects consumer prices to reach the 2% inflation target as the impact from oil prices fades, and that the central bank will analyse upside and downside risks, and adjust monetary policy if needed. Otherwise, he gave no indication of whether or not the central bank had any plans for additional easing."

For further market commentary from Jarratt Davis, please email [email protected].

SOURCE JarrattDavis.com