Kuroda burned the speculators and it looks like a set-up

It looks an awfully lot like the Bank of Japan is playing games with the market.

To recap, two things kicked off speculation about a BOJ pivot today.

The first was on December 31, when Nikkei reported that the BOJ was considering raising its inflation forecasts, including boosting 2024 inflation from 1.6% to 'close to' 2%. That kicked off the yen rally.

The second was from Kyodo, also citing sources familiar with the BOJ, who said the 2024 forecast would be 'close' to 2%.

If that forecast was boosted, it would pave the way for a normalization of policy. Instead, it was left unchanged at 1.6%.

What happened here?

There's absolutely no way both of these reputable news organizations just made up these stories. Someone at the BOJ tipped them off, but why?

I suppose it's possible that there was a plan to normalize and then the government pushed back on it. Evidence of that was a comment Monday from Hiroshige Seko, the Liberal Democratic Party’s upper house secretary general, who said "now is not the time for making a major policy change.”

Alternatively, Kuroda may have wanted to burn the speculators. Everyone leaned very hard into BOJ easing and that meant yen buying and JGB selling. The BOJ may have decided that was unhelpful and could undermine its messaging and efforts to balance inflation Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is m Read this Term.

The problem is that burning the specs once doesn't change the state of play. The hyenas have been beaten back but the BOJ is still a wounded animal, holding a position that's offside with the reality of inflation. That's why USD/JPY has given back nearly all the gains.

You would love for Kyodo or Nikkei to offer a post-mortem here but they're likely not going to burn a source and there was also enough wiggle room in the initial reports to leave the BOJ an out. We'll likely never find out what happened but it all sets up another round of drama at the March 10 BOJ decision date.