• Yen Surges on BOJ Stimulus Exit

The Governor of the Bank of Japan Haruhiko Kuroda said on Friday that the apex bank will start looking into balance sheet normalization in 2019. Making it the first time the bank will be specific on normalization policy.

The yen gained across the board following the comments, gaining 0.53 percent against the U.S dollar to 105.64 during the Asian trading session, while emerging currencies from Asia-pacific declined against the yen as projected in the forex weekly outlook.

“Kuroda’s comments are important because he officially acknowledged a change in policy was likely before the end of FY2019,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “Technically, however, this shouldn’t come as a surprise as core inflation is expected to reach 2.3 percent by then.”

The bank expects inflation to move towards 2 percent target in 2019, however, the recent surge in yen attractiveness may disrupt that projection as a higher foreign exchange is likely to impact business profits and hurt wage growth amid rising import costs.

The USDJPY is about to retest 2017 low of 105.57, our weekly target. A sustained break below that support level and the descending channel, as shown above, should open up 104.16 support —especially now that the U.S. uncertainty has risen on tariffs. Therefore, we remained bearish on USDJPY.

“Right now, the members of the policy board and I think that prices will move to reach 2 percent in around fiscal 2019. So it’s logical that we would be thinking about and debating exit at that time too,” Kuroda said. “I’m not saying that the negative rate of 0.1 percent and the around 0 percent aim for 10-year bond yields will never change, but it is possible. We will be discussing that at each policy meeting.”