From a Deutsche Bank (macro strategist Alan Ruskin) client note
- A risk the yen strength will become self-fulfilling
- Many of the hedging activities associated with a weak yen in the first four years of Abenomics could go into reverse
- Rising Japan FX hedge ratios on foreign investments will make current account surplus recycling difficult ... could lead to a source of ongoing yen strength
- Yen's its historical correlation with Nikkei suggests USD/JPY could fall below 105
- Official BOJ intervention is unlikely (except in the case of serious FX volatility)
- Currency intervention against G-20 rules
Outlook for BOJ policy:
- More QQE ... buying risky assets, particularly securitized products