170 yen warning from Vanguard

Vanguard, which manages about $1.7 trillion, warned that the dollar/yen exchange rate could move towards 170 if the Bank of Japan disappoints in its policy shift.

Ales Koutny, the fund’s head of international bonds, said a small cut from its 6 trillion yen ($37 billion) monthly bond purchases would disappoint markets.

“If bond purchases are reduced to just 5.5 trillion yen per month in July, or even 5 trillion yen, markets could drag the dollar/yen towards 170,” Koutny said.

Stating that the bond purchase reduction should be accompanied by interest rate hikes, Koutny said, “If they disappoint on either of these two fronts, there is only one direction the dollar / yen can go.”

According to the Bloomberg survey, only three economists expect both a reduction in bond purchases and an interest rate hike from the BOJ in July.