Forex Flash: Could JPY revert to worlds key funding currency? – UBS

FXstreet.com (Barcelona) - The BoJ's role in monetary easing cannot be understated. As it will be the main source of liquidity provision (OMT pending) when/if the Fed steps back, the JPY could even revert to the status of the world's key funding currency. According to Research Analyst Gareth Berry at UBS, “This could happen in two forms: firstly, Japanese investment flows would once again head overseas in size - shifts global markets are already heavily anticipating.”

Moreover, if the JPY is to be an outright financing currency for capital flows and trade flows - another shift the Japanese government appears to be pushing for - the much feared exit economic impact of dollar-based investors heading for the exit could yet be delayed. This point may be good for asset prices and short-term sentiment, but in the long-term the BoJ might actually be doing their Asian neighbors a disservice. Last Thursday, China's State Administration of Foreign Exchange already warned that the yen's sharp decline could prove destabilizing.