The yen gained more than 3% against the dollar today after the Bank of Japan (BOJ) surprised by changing its yield curve control framework. Kit Juckes, Chief Global Currency Strategist at Société Générale, believes that the yen may have more room to advance.
The yen hit lows not seen since 1973, and has room to bounce
“The BoJ has widened the band in which the 10-year JGB yield can fluctuate to +/-50 bp and announced daily 10-year JGB buy operations with a yield of 0.5%. Monthly purchases will go from 7.3 to 9 trillion yen. The BoJ stresses that this measure is intended to tackle the (damaged) functioning of the bond market, but attempts to downplay it politically will fall on deaf ears.”
“This is a turnaround for the BoJ, which has held firm against any reversal in recent months. Symbolically, this is an important step. Furthermore, the yen remains undervalued by almost any measure. In real effective terms, has fallen to its lowest level since 1973.”
“We have argued before that large swings in USD/JPY are highly dependent on Japan’s net international investment position and changes in currency hedging ratios. This move increases the pressure to hedge portfolios of foreign assets and, therefore, to buy yen, in a few active holiday markets.”
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.
