The BOJ announced no change to its policy today (but it did up inflation forecasts slightly as expected) and that disappointed yen bulls and bond bears. However, the surprise factor was that they instead double downed on defending their yield curve control policy – instead of those anticipating that perhaps they may further tweak or abandon it altogether eventually.
That has alleviated the selling pressure in Japanese bonds with 10-year JGB yields sliding from the upper limit of 0.50% over the past week or so. Meanwhile, the yen has been hammered lower with USD/JPY racing up from around 128.55 to 131.30 currently – up well over 2% on the day.
Don’t say that you weren’t warned though:
The market positioning clearly showed that speculators were betting on back-to-back major policy changes by the BOJ but after a sense of incertitude in the central bank’s communication, I reckon policymakers cannot risk too much change in too short a period.
That doesn’t mean that they aren’t going to slowly move towards normalising policy but they will definitely bide their time on that. Kuroda’s term ends in April and policymakers will also surely want to wait to see how the “Shunto” spring wage negotiations go.
For now, it is Kuroda who is laughing at least as he smacks down the market. Obligatory image of course.