JPY Rates: Where will the pressure go?
Aside from the FOMC meeting this week, considerable attention would also be paid to the Bank of Japan’s (BOJ) meeting on Thursday. The key issue lies with whether the BOJ would tweak YCC. Similar arguments have been made before and speculators did try to prompt the BOJ to adjust by selling JGBs and shorting JGB futures in June. However, the final decision still lies with the authority. That may well depend on what the Ministry of Finance (MOF) thinks about the pace (and level) of yen weakness. The decision (whether to adjust YCC or not) can have significant implications across assets and there is a need to consider volatility as well as second order impact. If the BOJ maintains status quo, the initial reaction might well be stable-to-lower JGB yields. This would be more of the same as the JPY continues to bear the brunt of the adjustment. If the BOJ either widens the YCC band or shift the targeted tenor to the 5Y. the expected gap higher in 10Y JGB yields would be a source of volatility across DM rates. Clearly, a change in YCC tenor to the 5Y implies more room for the 10Y to adjust and should have a much larger impact on global markets.
In short, the BOJ’s action / inaction determines where the pressure gets released (first order impact would either be higher 10Y JGB yields or weaker JPY). These will have spill-over either unto global yields or FX. The second order impact would be more difficult to determine. For the most part of the year. A weaker yen is good for Japanese equities. However, there might be a tipping point where yen weakness hurts more than it helps. If the BOJ decides to tweak YCC, the subsequent reaction would also be difficult to ascertain as the market could infer that more adjustments could be forthcoming. Too fast an adjustment in either rates of FX could also trigger a negative reaction in sentiment. Unfortunately, it feels that this event represents volatility risk that is perhaps second only the Fed this week.
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.