As expected, the BOJ left policy unchanged today but it is making a stand in trying to maintain yield curve control. The Japanese central bank vowed to continue with unlimited bond buying of 10-year JGBs at 0.25% at every business day, unless it becomes clear such an offer would draw no bids.
That has helped to see 10-year JGB yields fall to 0.22% after the constant pressure over the past few weeks in testing 0.25%.
It's a big stand by the BOJ but it comes at a cost, with the yen now down 120 pips on the day to 129.60 levels:
I outlined exactly one month ago as to why the BOJ's move to step in with bond purchases is actually a detrimental factor for the yen here. But a recap just in case:
"The issue with intervening too often here is that it loses its perceived "effectiveness". It sort of draws untoward attention to the current situation with the yen and that could cause the currency to weaken further."
That's a dangerous game to be playing in trying to maintain yield curve control in an environment where yields are continuing to surge. I'm sure Kuroda & co. will be hoping for some help from the Fed next week but it's not a guarantee.
Either way, it seems like we're lock and loaded for the next leg higher in USD/JPY (lower in yen). That will come on a break above 130.00 with little to really cap the momentum until the January and February 2002 highs near 135.00.
