MUFG discusses the JPY outlook in light of the BoJ's minor policy tweaks at its July-31 meeting in which the central bank 1- unveiled plans to strengthen the framework for continuous powerful monetary easing, along with 2-introducing forward guidance for policy rates.
"Overall, we do not see any significant implications for the performance of the yen from the BoJ’s policy tweaks. The forward rate guidance is the more dovish surprise which could encourage a weaker yen, although it is partly offset by the BoJ’s willingness to allow yields to move up and down to some extent alongside making asset purchases more flexible. The big picture remains unchanged though. The yen has already adjusted sharply lower in response to aggressive BoJ easing. It is now one of the most undervalued G10 currencies.
As a result, we still believe on balance that it is more likely to strengthen in the medium-term. The BoJ’s aggressive policy easing should already be in the price of the yen at this stage, and making policy more sustainable in unlikely to prove sufficient to make the yen even weaker still," MUFG argues.