Synopsis:

ANZ expresses hesitance in taking long positions on the Japanese Yen (JPY) despite potential moderation in USD/JPY gains following the Bank of Japan (BoJ)'s meeting in 2024. The bank compares the current BoJ's cautious approach and uncertain outlook for future rate hikes to its stance in 2006 and 2007, noting parallels in messaging and subsequent JPY underperformance.

Key Points:

1. Historical Context: The BoJ's historical tendency to maintain very low interest rates for extended periods post-hike has led to periods of JPY underperformance. The cautious language used in 2024, indicating that "accommodative financial conditions will be maintained for the time being," echoes past sentiments.
2. Economic Challenges: Japan's economic outlook continues to pose challenges, with consumption acting as a drag on GDP and manufacturing still in contraction territory. Weakness in global trade growth could further depress the Japanese economy and the JPY.
3. JPY Weakness Correlation: Since the COVID-19 pandemic, the JPY's weakness has often been associated with a divergence between export volumes and values, highlighting external factors' significant impact on the currency.
4. Short-Term Outlook: While some moderation in USD/JPY gains might be expected following the BoJ's meeting, ANZ advises against adopting long JPY positions. They suggest that any news or rumors of further BoJ tightening should be approached with skepticism regarding their impact on strengthening the JPY.

Conclusion:

ANZ's analysis advises caution in taking long positions on the JPY, citing historical precedents of BoJ policy impacts, ongoing economic challenges, and the currency's sensitivity to global trade dynamics. The advisory reflects a cautious outlook on the JPY's performance in the near term, even in the face of potential policy tightening by the BoJ.