An end to ultra-expansionary monetary policy is a double-edged sword for the Yen – Commerzbank

Is it time to normalize the BoJ’s monetary policy? Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, analyzes how the end of ultra-expansionary monetary policy could impact the Japanese Yen (JPY).

If the BoJ begins to exit in three weeks, JPY may initially benefit

For the Yen, an end to ultra-expansionary monetary policy is a double-edged sword: on the one hand, it means slightly higher JPY carry, but on the other hand, no higher carry in the long run. 

In my view, this means that if the BoJ does indeed begin to exit in three weeks, this may initially have a positive effect on the JPY. However, this effect would be limited. At the same time, the chances of at least real (i.e. inflation-adjusted) positive real interest rates would decline.