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Does the BoJ want a stronger yen?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Newswire reports suggest that the Bank of Japan may wish to lend money to banks at negative interest rates – recognising, perhaps, that charging negative rates on bank reserves is a tax and perhaps this should be offset with a subsidy.
  • It does depend on the conditions attached, but if negative rate lending is anything like the ECB's operations this could signal tolerance for a stronger yen. Restricting subsidised lending to banks that lend the money domestically acts like a capital control and potentially bolsters the domestic currency.
  • Greece meets is creditors to talk about the next disbursement of aid, with the Teutonic cry of "we must have discipline" echoing across the markets once again. The German finance minister has expressed doubt about whether any of this will "work".
  • Euro area business sentiment is due. This has the normal tendency to overreact that most sentiment data inherently has. There is also the issue of the currency – although the data is supposed to be a real indicator, the bias is for stronger correlation with nominal events, which are impacted by the currency.