Fight with a recession and spur consumer spending – these two efforts Bank of Japan has been desperately applying with very mild signs of success. After switching to targeting bond yield curve in September – quite weird move in my opinion, inflation and consumer spending has continued to miss on the downside showing extraordinary measures don’t work.
And its quite logical – long-term yield curve is a kind of market-based outlook on inflation and trying to adjust yield curves is not working on an actual problem, rather at its consequence. Of course, yield curve on 10Yr bond yield has been rising since October but it can the BoJ on the supply selling them to keep yields like it shows everything is good with Japanese economy. But on the fundamental side, December Retail trade and large retail sales missed projections ( 0.6% vs. 1.7% exp., -1.3% vs. -1.0% exp.) data showed today signaling BOJ has no other options but to maintain asset-purchase program at current levels (80B Yen/month).
Japan Retail Trade
Japan Consumer inflation
Signs of economy pickup seen in last three months may be also attributed, as said ECB Draghi, to rising oil prices while underlying trend hasn’t changed. It is an important cue that allows as to anticipate extended stimulus from BoJ and thus increased bearish pressure on Yen.
I’m buying USD/JPY from 113.60 after today’s drop as expect that Kuroda will stick to the same stimulus size what will be a perfect handle for Yen bears to ramp up pressure.
Good luck to all!