Japan: Helicopter money speculation takes the shine off the yen’s appeal - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen has continued to weaken in the Asian trading session lifting USD/JPY back above the 105.00-level.

Key Quotes

“The next key resistance level comes in just below 106.50 where the 55-day moving average is located. The reversal of yen strength in part reflects the ongoing improvement in global investor risk sentiment as Brexit vote fears that it could trigger global financial market instability have not materialized. Global yields have adjusted lower in part in anticipation of weaker growth and looser monetary policy. Investors’ search for ever dwindling yield has acted to support global equity markets lifting notably US indices to record highs this week. As a result safe haven and speculative demand for the yen has eased in the near-term.        

The yen’s appeal has been undermined as well by building speculation that the BoJ could adopt more aggressive monetary policy easing. Such speculation has been encouraged further overnight by comments from Etsuro Honda, a key advisor to Prime Minister Abe, who has stated that former Fed Chairman Bernanke told him when they met back in April that helicopter money could work as the strongest tool to overcome deflation in Japan.

The Bloomberg report suggests that the form of helicopter money discussed involved the government issuing non-marketable perpetual bonds with no maturity date which the BoJ could purchase directly. It is understandable that long yen positions are being scaled back in the near-term although there has been no strong signal from Japanese policymakers that helicopter monetary is required at the current juncture. However, there is building evidence that serious policy discussion is moving in the direction of helicopter money in Japan which if implemented would weigh more heavily on the yen further down the road.”