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Sep 19 - 09:55 AM

Goldman: JPY Could See Short-Term Fluctuations as BoJ Meets, But Don't Hold Your Breath for Quick Normalization

By eFXdata  —  Sep 19 - 08:58 AM

Goldman Sachs suggests that the upcoming Bank of Japan (BoJ) policy meeting could spark some momentary excitement for JPY long positions. This would particularly be the case if the BoJ statement acknowledges recent currency weakness and signals a more deliberate path toward rate hikes. However, Goldman maintains that markets are likely to be disappointed by the slow pace of monetary policy normalization.

Key Points:

  • Statement Watch: Markets will be keenly looking for a mention of the recent currency weakness in the BoJ's policy statement, along with any change in guidance toward future rate hikes.

  • Slow Normalization: Goldman's baseline outlook suggests that the market will continue to be disappointed by the BoJ's sluggish path toward policy normalization.

  • 3-Month Forecast: Goldman holds a 3-month forecast of JPY at 150 against the USD, with the possibility of more verbal pushback from the BoJ if the market trends quickly toward that level.


For Forex Traders:

  • Currency Strategy: JPY long positions could gain some short-term traction if the BoJ changes its language. However, without an actual policy shift, any upward momentum is likely to be short-lived.

For Investors:

  • Investment Implications: An absence of clear signals toward a more hawkish monetary policy by the BoJ could mean a continued environment of low yields for JPY-denominated assets.

For Economists:

  • Monetary Policy Implications: Economists should watch for any shifts in BoJ’s tone, as that could indicate a future policy change. However, Goldman remains skeptical about rapid normalization from the BoJ.

The Takeaway:

Goldman Sachs anticipates that although the BoJ policy meeting could generate some short-term volatility in the JPY, a slow pace of monetary policy normalization will likely keep the currency subdued in the longer term. Keep an eye out for any significant changes in the BoJ's language, but don't expect drastic shifts in the near future.

Goldman Sachs Research/Market Commentary


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