USD/JPY: Will continue to fluctuate violently in the near future

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Despite the new (less traditional) policy language surrounding the yield curve control policy (YCC), the BOJ has in practice raised the cap on 10-year JGBs from 50 basis points to 100 basis points. In fact, we can say that the range is now actually -50bps to +100bps as opposed to simply widening the range to +/-100bps – reflecting asymmetries slightly in favor of the JPY.

We doubt this will put an end to the recent wild swings in USD/JPY. The BOJ’s inflation forecasts for fiscal 2024 and 2025 were disappointingly unchanged, suggesting the central bank remains unconvinced that inflation can stay above 2%. In other words, it doesn’t add anything new to the BOJ’s thinking. The BoJ’s verbal communications are likely to continue to skew dovish.