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

194

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.