The USDJPY has been increasing since the last week of November and is now monitoring stronger levels below 114 yen for one single dollar note.
The yen is getting weaker but remains way too strong for the Bank of Japan to start normalising its monetary policy. The central bank is in all-in mode and the effect on the yen is still mixed. One very important thing needs to be said: the day when the BoJ even hints at a possible normalisation of the monetary policy, the yen will likely spike, disrupting all the strategy from the Japanese Central Bank.
We then believe that the BoJ will remain in “dovish mode” until inflation has killed part of its debt. This can take years, even decades. Hence, the BoJ is condemned to follow the path of the Fed or the ECB. Inflation is what BoJ officials are running for. Shinzo Abe recently declared that a wage increase of 3% would boost consumer prices, which in the end will have a positive impact on debt. The BoJ knows that inflation is now mandatory to kill the massive debt, but it still has a long way to go. And the BoJ knows. Look towards the US, hoping for several Fed rate hikes in the coming years.