The yen has weakened sharply after the decision of the Bank of Japan (BoJ) to keep monetary policy settings and yield curve control policy unchanged. However, the BoJ update does not alter MUFG Bank’s bullish outlook.
Expectations of an imminent change in monetary policy adjustments and yield curve control disappoint
“The Bank of Japan’s decision to keep monetary policy unchanged has caused a weakening of the yen of about 2% against other major currencies. The magnitude of the initial sell-off is broadly in line with our expectations for a 2-3% drop for the Japanese yen if the Bank of Japan does not change monetary policy.”
“Nevertheless, there is a risk that the yen sell-off will continue to spread in the near term. The decision is unlikely to completely eliminate speculation that another policy change will come in the next few policy meetings, helping to cushion how much further and by how much the yen weakens. Nevertheless, the next BoJ monetary policy meeting is not until March 10so speculation about an imminent policy change could remain low in the coming month.”
“We expect market participants to remain skeptical about the sustainability of the BoJ’s policy adjustments. Furthermore, Governor Kuroda’s upcoming end of term at the end of April will continue to fuel speculation about a change in policy under new leadership. Under these circumstances, the yen sell-off should be temporary and we maintain a bullish outlook for the yen for the remainder of the year.”
Source: Fx Street
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