“We think the Yen will weaken towards 126 because willingness and commitment to hit the 2% inflation target,” he said. “Governor Kuroda is still easing policy further despite dissentions increasing. He has also responded to criticism that the BoJ is running out of assets to purchase by introducing a new method – negative rates. Governor Kuroda delivered on his forward guidance today that BoJ can and is willing to do more in the future.”
“We are also watching two developments,” Yokota continued. “First, annual spring wage negotiations will be key. Compared to 2.4% increase in 2015, 2016 is expected to be lower at 2.0%. However, dipping below 2.0%, lower than BoJ inflation target of 2%, would be a negative development and hurt inflation expectations. Second, Prime Minister Shinzo Abe may delay the VAT hike from 8% to 10% scheduled for April 2017, which will be positive for the equity market and negative Yen.”
