Mizuho say the Bank of Japan will accept yen weakness in the near term, bacuise it strengthen once the bank tightens policy, perhaps as early as Q2.
Mizuho say that while the Fed, ECB and BoE have yet to fully admit that rate cuts are on the horizon, the Bank of Japan want to avoid providing a sudden pivot as it could disproportionately pile appreciation pressures on the JP. An unwinding of yield and carry would work together to amplify FX moves (yen strength). Thus the BoJ will not rush to a policy tweak that may be construed as tightening, and conclude:
- Some additional JPY weakness currently may be the necessary trade-off to avoid inconvenient and undesirable JPY surge later.
- expect a 146-150 range in coming months with heightened volatility.
