FxWirePro Medium term outlook: Yen might test 111 if BoJ acts

In the past two days, Japanese yen has retraced a lot as speculations went rampant that the Bank of Japan (BoJ) will release next level of stimulus pretty soon, even before its next monetary policy meeting, which is scheduled on 29th of July. Former Federal Reserve chairman Ben Bernanke’s visits to Bank of Japan (BoJ) led to the speculations that Bernanke has been there to discuss next phase in monetary policy, which is “Helicopter Money”, a term coined by American economist Milton Friedman and cited and popularized by Bernanke. This is an alternative approach to quantitative easing and negative rates which involve permanent monetization of fiscal deficits.

Japanese yen has been the best-performing currency this year and since January it has appreciated 13 percent against the dollar despite recent setback of 580 pips from the bottom 98.8 made post-UK referendum. The yen is currently trading at 104.6 per dollar. The recent rally in the equity market also helped to push the yen downwards.

Though we at FxWirePro do not believe that BoJ will succeed in the long term to weaken the yen, it has, however, enough firepower to influence it in the shorter run.

Hence, we expect the yen to weaken as much as 111 per dollar, should Bank of Japan (BoJ) increases from its current stimulus.