ICYMI from the BOJ yesterday and the response of the market.
Follow through for the yen in Europe and America times:
- ForexLive European FX news wrap: Yen flying high after BOJ policy tweak
- Forexlive Americas FX news wrap: Yen hits new highs as the BOJ fallout continues
Snippet remarks from ING:
- The BOJ's role as an ultra-dovish outlier among global central banks had been a key driver of JPY weakness in 2022, and markets are now assessing whether today’s announcement is effectively a first step towards a broader policy normalisation process in Japan, which would quite radically change the outlook for the yen in 2023.
- Incidentally, there is a risk that speculation of even higher JGB rates in 2023 could spill over into global bonds and equities (like it did today). Governor Haruhiko Kuroda’s press conference has been all about pushing back against such speculation: he explicitly warned markets not to interpret this as a rate hike and said that he doesn’t think a further widening of the yield band is needed.
- Our suspicion is that markets may need more reassurance with this, especially considering that Kuroda is due to be replaced in April 2023 and the timing may suggest the BoJ may be laying the groundwork for normalisation under a new governor.
- For now, we think risks remain skewed to the downside for USD/JPY into the festive break, and we cannot exclude a break below 130.00 - also given the generally soft dollar environment.
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I posted this chart of the huge USD/JPY drop earl;ier:
