JPY: More negative rates under consideration may have contributed to the weakness – BBH

Research Team at BBH, notes that the Japanese press reports that more negative rates are under consideration may have contributed to the weakness of the yen. 

Key Quotes

“Note that that today may be the fourth session of the past five that the greenback advances against the yen.  Broadly speaking, it appears the backing up of interest rates offsets the weakness in equities as driving the yen. 

We suspect the kernel of truth behind the reports of negative rates is that officials do not want to rule any action out.  Also, recall that the negative rates apply to a small part of deposits at the BOJ.  They could widen the coverage of negative rate, which is broaden its applicability rather than deepen the cut. 

A Bloomberg poll found a little over half the economists expect the BOJ will expand monetary stimulus next week.  Of those that do see a move, 53% anticipate a deeper cut in the negative rate and a little more than a third (35%) think the BOJ will buy more government bonds. 

The dollar is rose to a six-day high against the yen near JPY103.35.  Above here, resistance is seen in the JPY103.85 area and then August high in the JPY104.00-JPY104.30 area.  Intraday technicals and the easing of the upside momentum on yields warns that the dollar may struggle to extend its gains without new news.  On the downside, initial support is pegged around JPY102.70.”