Market Analysis

Yen Waits On This Week’s BoJ Meeting

Traders will be keeping a close eye this week on the Bank of Japan’s (BoJ) two-day policy meeting which ends on December 21. Japan’s Nomura Bank thinks the BoJ will “leave monetary policy unchanged at this meeting.” Economists at Morgan Stanley MUFG Securities “do not expect the BoJ to announce any significant change in policy next week, given that “underlying” inflation is still running at around zero.” A continuation of current ultra-accommodative policies by the BoJ, following last week’s Fed hike, could perhaps be interpreted as negative for the yen vis-a-vis the US dollar (USDJPY) but the post-Fed price action in USDJPY arguably suggests the currency market is thinking along different lines.

In fact a report on Bloomberg on Friday highlighted that as one BoJ policysetter Goushi Kataoka, who joined the BoJ board in July, has been calling for further monetary policy easing, recent comments from BoJ Governor Haruhiko Kuroda on the “reversal rate” theory might not have been hints about future removal of ultra-accommodative policy measures but rather signified a pushback against any calls for further easing. Traders may wish to keep an eye out for any references to the reversal rate at the BoJ press conference on Thursday. For their part, while remaining yen bearish for 2018  Nomura Bank thinks “the risk [to its view] is for renewed yen appreciation caused by geopolitical tensions or deterioration in the Chinese economy.” Either way, this week’s BoJ meeting should give currency traders food for thought.

Written by Neal Kimberley, External Currency Analyst.