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FUNDAMENTAL ANALYSIS

Actions vs. Words

What should be expected for NZD/JPY

Actions vs. Words, What should be expected, NZDJPY, Bank of Japan , BoJ, RBA, RBNZ, Fundamental Analysis, fx trader, forex

17 Jun 2015

There’s one thing that may be said for the Bank of Japan under the Governorship of Mr. Haruhiko Kuroda: he certainly has a penchant for surprising markets! In his address to the Japanese parliament on 10 June, Mr. Kuroda remarked that: “...The yen is unlikely to weaken further in real effective terms if you think with common sense, given how far it has come...” Naturally, this caused an immediate reaction in FX markets; the Japanese Yen strengthen against all major currencies.  RBS strategist Greg Gibbs considered the remarks ‘significant’, stating that1 “...Kuroda has said nothing like this in the past, preferring to stand aside from comments on the exchange rate. He has often balanced the calls from others that the currency was weak, by suggesting it should reflect fundamentals that were by his making intended to weaken the yen...

The remarks came on the heels of RBA Governor Glenn Stevens indicating that with exports weakening, further easing of the RBA’s benchmark cash rate might be required2: “...We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth...” On 11 June, RBNZ Governor Wheeler followed and announced a reduction in the cash rate by 25 basis points to a record low of 3.25%, contrary to consensus.

Like Australia, New Zealand’s housing market is at the edge of ‘speculation’. The RBNZ took a different tack, however, raising property capital gains taxes and down payment requirements3; certainly a more targeted approach. By isolating housing inflation, the RBNZ has focused on stimulating exports.

New Zealand would benefit by a stronger Japanese Yen. Among those exports to Japan are agricultural products, most notably dairy, fruits, beef, vegetables and fish. Currently, the Japanese government is adhering to its schedule4 of retail sales tax increases, currently at 8%, expected to rise to 10%. Hence, it would serve the current Japanese government well to have an offset against increases in food prices. Conversely, the combination of a stronger Yen and lower borrowing rates in New Zealand should offset any currency related price changes on Japanese imports: cars, trucks and heavy construction equipment. So when combined with the RBNZ action, the result will be mutually beneficial to both countries.

Actions vs. Words, What should be expected, NZDJPY, Bank of Japan , BoJ, RBA, RBNZ, Fundamental Analysis, fx trader, forex Exports to China

Actions vs. Words, What should be expected, NZDJPY, Bank of Japan , BoJ, RBA, RBNZ, Fundamental Analysis, fx trader, forexTopExportersOfCondensedMilk

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