The USD/JPY could continue to rise if the Bank of Japan refrains from making another change to the YCC, MUFG Bank economists report.
The BOJ’s purchase of JGB, similar to that carried out after the July YCC change, could limit the reaction of the foreign exchange market.
Assuming that the Bank of Japan does not change the YCC or its monetary policy, and that the FOMC meeting goes as the market expects, the USD/JPY could rise further.
Expectations of a change in monetary policy by the Bank of Japan have grown, so an announcement of no change could fuel new sales of the yen. If this scenario were to cause large intraday movements, it could be enough for the Ministry of Finance to instruct the BOJ to intervene.
In the risk scenario of a change in the YCC (to a band of +/-150 basis points) there would be a certain appreciation of the Yen (1%-2%), although as in July, if it were followed by strong JGB purchases by the Bank of Japan, the impact on the exchange rate would likely be moderate, especially ahead of the FOMC and payrolls report.
The biggest downside risk for USD/JPY would be the removal of the NIRP, which would be a very significant and bold move by the BOJ at this juncture and would result in a steeper decline in USD/JPY (3%-5% ), but we attribute a low probability to the BOJ raising its key policy rate from the current -0.10%.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
