Date: 19 Oct 2017

Japan’s Nomura Bank feels the October 26 European Central Bank (ECB) meeting will announce “that the size of its asset purchase programme will be tapered from EUR60bn to EUR40bn over the first six months of next year and then from EUR40bn to EUR20bn for a further three months beyond that.” If Nomura is right, it feels the yield in Bunds, the benchmark 10-year German government bond will rise by 0.75 per cent by the end of 2017. Of course both the tapering scenario and the Bund yield forecast are just hypothetical but with a high likelihood that the ECB will announce some move to rein in the pace of asset purchases later this month, traders might be pondering how that might play out. In the case of euro/dollar, traders might wonder whether, given that the Fed still seems set on another US rate hike in December, EURUSD would be the right currency pair to focus on in the event of an ECB taper announcement.

One alternative might be euro/yen. “Achieving our 2 per cent inflation target is still a long way off,” Bank of Japan Governor Haruhiko Kuroda said in Washington at the weekend, adding that “the BOJ will persistently pursue aggressive monetary easing, with a view of achieving its target at the earliest possible time.” The ECB might be on the cusp of reining in its own asset purchase programme but it’s still full steam ahead for the BOJ. The comparison is stark. It will be for the market to decide if that has implications for the value of EURJPY.

Written by Neal Kimberley, External Currency Analyst.