Quotes from HSBC:
- Japan is not about to mimic Switzerland and abandon its currency strategy. The JPY strengthened earlier this year on signs of growing policymaker concern about the potentially damaging effect of a weak JPY on the Japanese economy. The government appeared less welcoming of further JPY depreciation and began to tone down its rhetoric on the need for additional easing.
- There has also been evidence of diverging opinions within the Bank of Japan regarding the merits of additional easing and associated JPY retreat. Coming on the heels of the SNB's abrupt end to its EUR-CHF floor policy, the possibility of a similar U-turn in FX attitude in Japan carried particular weight in markets.
- But despite the expressed reservations regarding JPY weakness, stalling inflation should prompt the BoJ leadership to push through another increase in the pace of QE, perhaps as early as April. This should see the JPY resume its depreciation and we continue to see USD-JPY at 128 by year-end 2015.