Forex Institutional Research: Citi BoJ – July Survey Results
Key quotes from the Citi BoJ FX report:
How likely is an ease?
Nearly 70% of respondents personally expect the BoJ to ease in July; 30% expect a first move in September or later. Anecdotally when Steve was traveling in Asia, the view on a July BoJ move was much more mixed, and in particular there was a strong contingent who felt the BoJ would not ease again, period. Bottom line – expectations are heavily skewed for an ease. In contrast, when asked what they thought market expectations were for the BoJ in July, 94% of participants expected some form of easing. This was one of the biggest discrepancies in the survey. If investors trade their personal views against their perception of the market view, it means that an ease is less of surprise and a disappointment is an even bigger surprise than most investors think
Perceptions of positioning
Respondents see positioning much less starkly than expectations of easing would suggest. Only about 5% each saw the market as being heavily long or short JPY. There was a 43.5% share thinking the market was moderately long against 31.5% thinking it was moderately short. About 15% saw the market as flat. The gap between the 70% who saw the BoJ as moving and perceptions of moderate positioning is striking. They may think that the impact of expected moves is already priced in, but it remains difficult to jive the big percentage anticipating a BoJ move and a 53% percentage who thought the market was either flat or short USDJPY
What will the BoJ do?
There were big discrepancies in perceptions of the policies that the BoJ would put in places. Among respondents, only 31% personally thought helicopter money was coming, while 43% thought the market expected some form of helicopter money. It is difficult to assess what impact helicopter money would have on JPY and asset markets, but the results suggest that investors may be less positioned for it than they think the market is. About 40% of respondents expect additional cuts deeper into negative rates, roughly what was seen as the market expectation. Of those who anticipated cuts further into negative rates, about 2/3rds expected some direct help for banks either through ETF buying of bank stocks or negative loan rates for banks to improve NIRM. However, investors individually assigned a bigger risk to negative borrowing rates for banks (38%) than they thought was expected by the market (25%). Of those who didn’t see any policy rate cuts, less than 25% saw any likelihood of help for the banks. The biggest consensus view was that an ease would bring additional ETF buying (almost 70%) and JGB QQE (almost 55%). The expectation was very close both for personal expectations and assessment of market expectations. So it may be that a lot of good news is already priced into equity and bond markets.
Price impact of disappointment
People are confident that no move from the BoJ, despite forward guidance will be negative for USDJPY, but they leave room for the BoJ to put off a move till September if they give concrete forward guidance. On no move and no guidance, 80% of responses say USDJPY will fall more than 3%, more than 30% think the drop will be more than4%.
On no move but concrete guidance for September, 34% saw a 1-2% USDJPY drop, and 15% saw a 2%+ drop. BoJ Governor Kuroda has enough credibility for 30% to think USDJPY would rise by 1%+, while 20% saw changes less than +/-1%. Even though the numbers were stacked for USDJPY to fall, the outcomes may tempt the BoJ to delay, make promises, and decide in September whether to move or not. The more modest USDJPY (and presumably equity) consequences from dangling a six week carrot in front of the market may be hard to resist if no action is intended.
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