This is via the folks at eFX.
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- Danske Research discusses the BoJ policy trajectory and maintains a bullish bias on the JPY through year-end.
- "Markets price a 10bp rate hike by summer and another 10bp rate hike by year-end, bringing the monetary policy rate to 0.1% by year-end 2023. We think tweaks to the YCC are more likely before conventional rate hikes. Changes to the YCC can happen in two ways; i) widening of the YCC band to e.g. +/-100bp (currently +/-50bp), ii) shortening the target maturity of the YCC policy to e.g. 2 or 5 years, from 10 years. Both are essentially tightening of monetary policy, and the former looks more likely in the short-term, as it is easier to explain from the perspective to improve market functioning. We expect the BoJ to tweak the YCC during Q2 and possibly hike the policy rate by 10bp to 0%," Danske notes.
- "Overall, USD/JPY seems fundamentally overvalued and together with our base case of monetary policy tightening during Q2, we expect the cross to drop to 125 in 3M," Danske adds.
Bank of Japan Governor Kuroda and incoming Governor Ueda.
