The speculation and anticipation in the past week has seen USD/JPY crack below 130.00 and hit its lowest levels since late May last year earlier today, touching 127.21 before the latest bounce back here. Traders are watching the BOJ closely after last month's surprise policy tweak, especially with recent reports suggesting that policymakers could produce a follow through of sorts.
In that lieu, I'm afraid the risks are skewed towards this week's policy meeting being a disappointment for yen bulls. Sure, there are growing signs from the bond market and Japanese inflation data to suggest that the central bank could angle towards a further shift in policy but that doesn't mean that they will deliver such a move immediately.
It would not be surprising if the BOJ does deliver back-to-back surprises to markets but at the same time, it wouldn't be the most surprising thing either if they stick to the status quo on Wednesday.
There is every possibility that Japan may prefer to coordinate any major policy shift after Kuroda's tenure as BOJ governor is done with in April. So, while we may still be headed in that direction, it may not come as soon as this week.
But markets have every right to feel anxious and guarded against such a likelihood in two days' time. We have not gotten this sense of incertitude in the BOJ's communication for many years now. That still makes this week's policy decision a toss up, even if the risks may be skewed towards one side more than the other.
USD/JPY positioning in the past week tells us what traders are anticipating so if the BOJ does disappoint, we could see a push back towards 130.00 again potentially just based on the disappointment.
As for now, we may see the downside be more limited. From earlier:
"USD/JPY has seen a good run lower after the break under 130.00 last week but there might be some position squaring ahead of the BOJ later this week, so as to preventing a further slump as traders stay guarded against any potential BOJ disappointment."
