Comments from US trade session via HSBC on yesterday's Bank of Japan action
(bolding mine)
- The initial catalyst for JPY strength was a BoJ announcement that it had reduced bond buying in the 10-25 year part of the curve by JPY10bn in December, and by a similar amount in bonds with a maturity of over 25 years.
- The BoJ has cut its purchases before but typically for maturities under 10 years.
- USD-JPY had been losing momentum anyway ahead of 113.20 at the time of the announcement. This may explain the exaggerated response to what was a rather modest trimming of bond purchases and, of itself, not really a signal of a pivot to the exit.
- Reports in the Japanese press (Kyodo) that the BoJ may increase its FY18 GDP forecast may also have contributed to the move lower in USD-JPY.
I am not in disagreement with that assessment at all.
On the "not really a signal of a pivot to the exit". Yeah. More, this via BNP Paribas Tokyo (Hiroshi Shiraishi, a senior economist there) commentary:
- "unthinkable" that the financial markets department would signal a policy shift instead of the BOJ's monetary policy board
- "I can understand that some in the markets took the reduction as a sign because everything seems good -- stocks are rising, the economy is getting better and bond yields have been stable -- but the policy change will come when inflation clearly improves. It's still below 1 percent and that means the BOJ isn't at the stage of starting an exit."
(note the financial markets department handles buying operations)