6.1 Will the RBA and the Bank of Japan follow NZ and begin tapering, or not?

This article is not intended to indicate or recommend buying or selling timing.

Please make your own investment decisions.

There was something I forgot to mention, so I’ve added it at the bottom.

The rapid acceleration of vaccination and the accelerating pace of investment are expected to reflect in the stock markets of the UK, US, and Europe, and in currency appreciation.

With the dollar/yen rate touching 110 yen, there are whispers of a viewpoint around 112 yen within this year, but the author currently believes that, following the trend from the beginning of this year, vaccination adoption will accompany a trend toward yen buying.

As of now, although the acceleration is evident, it is not yet fully established, so early-adopter funds are entering the stock market represented by the Nikkei Average, but this is not reflected in the currency market.

This line of thinking is not unreasonable: as the economy stagnates, money escapes to alternatives other than the yen domestically, and there is little demand for investment from abroad, creating a yen-selling consensus.

The reason is simple: since the yen is not being used, this is the natural behavior.

However, if the same trend continues after June, there is a high probability of a reversal, in my view.

If the Japanese economy is brought under control of infections, domestic demand will naturally start to turn around.

Even vaguely, this is something anyone can expect; if domestic demand rises, investment will naturally flow in.

The recent solid performance of the Nikkei reflects that kind of development.

Foreign investors who had been net sellers are now buying back Japanese stocks, and the timing for other investment edges to emerge is precisely now, so there is a flow of buying the yen and investing in Japan.

There is also a domestic trend of repatriation, where funds that had fled abroad are brought back to Japan.

There is also a perspective that a risk-on yen-buying scenario could occur.

As I mentioned yesterday, I want to keep this in mind as I approach June’s market.

The Nikkei Average, which had been on a soft trajectory, seems to have seen a pullback to this level as a buying opportunity as well.

Because domestic demand has not yet fully recovered, the market is not yet solid, and the Nikkei Average remains highly responsive to overseas stock movements. It rose from 28,800 on buying back, but following the softness of US futures, continued buying has not persisted, and prices have fallen.

Yesterday’s article noted the London fix; dollar selling accelerated and the euro/dollar jumped.

It is forming a textbook-like technical chart and rising.

This is aligned with the main scenario I wrote after the PCE deflator release on Friday, so the focus is on returning to the original trend, rather than chasing dollar buying at month end; the plan is to continue operating against the dollar from here.

Below are today’s highlights and analyses for the dollar/yen, euro/dollar, the Nikkei, and the RBA rate decision for the Australian dollar.