Date: 22 Jan 2018

The Bank of Japan will announce the results of its latest two-day policy meeting on Tuesday. The consensus view in the market is that the BoJ will stick to its current policy of keeping short-term interest rates at minus 0.1 per cent and the yield on 10-year Japanese government bonds (JGBs) around zero per cent. There’s also an expectation that the Japanese central bank will remain wedded to its current stance of buying JGBs at a pace such that its holdings increase at about 80 trillion yen a year. Additionally there’s an argument that with no decisions as yet having been made about whether or not Haruhiko Kuroda will be re-appointed as Governor of the Bank of Japan, and with a number of Deputy Governor terms also coming to an end, even if it might be minded to tweak policy, the BoJ might feel the current time is not appropriate. But what might any of this mean for the yen?

If the market is expecting the BoJ to leave unchanged an ultra-loose monetary policy that is in sharp contrast to developments elsewhere (and which might be presumed ordinarily to lend itself to a weaker Japanese currency), then such a view should arguably already be reflected in the yen’s value on the currency markets. Yet what’s quite clear from even a cursory look at the price action across USDJPY and various yen crosses (EURJPY, AUDJPY, GBPJPY) is that in the latter part of last week the yen actually performed well even as the market was concluding Tuesday’s BoJ meeting would result in no monetary policy change. Traders will also have noticed that data released last Friday by the US’ Commodity Futures Trading Commission, for the week ending Jan 16, showed speculators were holding a smaller net short yen position, though still very considerable, than a week previously.

Traders will have their own opinions but is it possible that with demand for the yen having appeared ahead of the BoJ meeting, the Japanese currency, at least on the crosses if not versus the USD, might be susceptible to weakness if the BoJ does now just stick to its current policy settings? In the meantime, traders may wish to take note of analyst talk of almost US$1 billion of 110.00 expiries on Monday at the New York cut (1500h London time), some US$900 million in the 110.70-75 area and almost US$550 million at 110.90-111.00.

Written by Neal Kimberley, External Currency Analyst.