Mizuho predicts that the Bank of Japan will tolerate a weaker yen in the short term, knowing that it will strengthen once the bank tightens its policies, possibly in the second quarter. The Fed, ECB, and BoE have not fully acknowledged potential rate cuts, but the BoJ aims to avoid sudden shifts that could lead to a disproportionate increase in the yen. This could also result in an unraveling of yield and carry, which would heighten fluctuations in the foreign exchange market, leading to a stronger yen. As a result, the BoJ will not rush to make policy changes, fearing it may be seen as tightening. Overall, Mizuho suggests that a temporary weakening of the JPY now may be necessary to prevent an unwanted surge later, and expects a range of 146-150 in the coming months.
In summary, Mizuho believes that the Bank of Japan is willing to accept a weaker yen in the short term, as it will ultimately lead to a stronger yen once the bank tightens its policies, possibly in the second quarter. This approach is different from other central banks, as the BoJ wants to avoid sudden shifts that could lead to a disproportionate increase in the yen and create greater volatility in the foreign exchange market. In this way, the Bank of Japan hopes to prevent an unwanted surge in the future by tolerating some weakness in the present, with Mizuho expecting a range of 146-150 in the coming months.
According to Mizuho, the approach of the Bank of Japan is unique in its willingness to accept short-term weakness in the yen in exchange for long-term strength. The bank is wary of making sudden policy changes that could lead to a disproportionate increase in the yen and create greater volatility in the foreign exchange market. As a result, Mizuho predicts a range of 146-150 for the coming months, as the Bank of Japan takes a cautious approach to policy changes to avoid unwanted currency fluctuations.