USD/JPY Monthly Fundamental Forecast September 2013 The USD/JPY closed the month at 98.13 above the monthly average as traders looked for safe havens after Syria became a major market focus. The possibility of US intervention sent a holiday thin trading month into panic. The Bank of Japan will release another policy statement next week and some further attention may be drawn toward the recent swap agreement signed with Bank Indonesia to share the two countries’ FX reserves. Such agreements change how country risk is to be evaluated. Japan’s FX reserves equal about US$1.2 trillion but have moderately declined since early last year and yet still equal about 20% of GDP today. As Japan’s own current account surpluses have dwindled from about 5% of GDP before the crisis to only 1% now, the ability of the country to backstop neighboring economies is significant but capped at current reserve levels. Central bank action will be the main theme of the month once the geopolitical situation returns to what is considered normal for the region. Highest: 99.95 Lowest: 95.81 Difference: 4.14 Average: 97.79 Change %: -1.30 The ‘tapering talk’ by Fed Chairman Ben Bernanke in May provided an early warning to the impending shift in monetary policy, along with the minutes from the July FOMC policy meeting and public musings by a number of the Fed’s Governors, both voting and non-voting members. The majority of policymakers had become more confident that the improving performance of the U.S. economy would allow it to be gradually weaned off the high octane monetary fuel — a development that would inevitably reinforce a renewed upward trend in longer-term borrowing costs. Whether intentional or not, the ‘talk of tapering’ has already accomplished much of the heavy lifting to normalize longer-term borrowing costs even before the Fed has actually begun to reduce the pace of its nonconventional bond buying.
Posted on: Sun, 01 Sep 2013 14:52:12 +0000
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