More pressure on the yen and a fillip for Japan’s government bonds.
(Bloomberg) — More pressure on the yen and a fillip for Japan’s government bonds.
That’s the view of market watchers after the Bank of Japan stuck with stimulus — though announced a policy review — at new governor Kazuo Ueda’s inaugural meeting. Tweaks to yield curve control have been delayed though are not off the table and while the statement came across as dovish to many, it also offered the BOJ some flexibility, they said.
BOJ’s Ueda Scraps Guidance on Rates, Calls Review, Holds Policy
Here’s what market watchers are saying about the BOJ decision:
Yen Pressure
John Bromhead, strategist at Australia & New Zealand Banking Group.
“Today’s meeting will put pressure on dollar-yen shorts, which have been a little crowded. With possibility of a more hawkish Fed next week, I think we could see dollar-yen test 136 over coming sessions.” The decision “certainly fits closer to what the market was expecting in terms of echoing patience and restraint”
Aninda Mitra, head of Asia macro & investment strategy at BNY Mellon Investment Management.
“BOJ’s decision stayed in line with expectations set off by, relatively dovish, pre-meeting comments from newly appointed Governor Ueda. However, with Fed meetings coming up, the BOJ’s comfort with a weaker yen could once again be tested. We wouldn’t be surprised to see the yen to go toward 140/USD in coming days and weeks.”
Joseph Capurso, strategist at Commonwealth Bank of Australia Ltd.
“We consider the change in the BoJ’s statement is a step towards dumping yield-curve control and negative interest rate policy in coming months. We are now more confident the BOJ will tighten monetary policy soon. Once today’s decision has been digested by market participants, we expect the yen to regain its losses in the early part of next week”
YCC Removal Still On
Christopher Wong, strategist at Oversea-Chinese Banking Corp.
“We still look for a removal of yield-curve control regime, interest rate hike at some stage this year amid broadening inflationary pressures. Near term, dollar-yen may firm on BOJ disappointment while Treasury yield is skewed to upside ahead of FOMC next week.”
Delay to Any Tweaks
Tsutomu Soma, a bond and currency trader at Monex Inc.
“The yen saw selling as there was some nervousness about the possible change in the market before the decision and this would also mean it may take some time before any changes. The BOJ will eventually tweak the yield-curve control, but it may take longer-than previously thought.”
Akio Kato, general manager of strategic research and investment at Mitsubishi UFJ Kokusai Asset Management Co.
“An end to the negative rate policy has been postponed given the BOJ is likely to do so only after the policy review is complete. Any tweak to yield-curve control will also be delayed especially given a possible US recession down the road. The bond market has rallied in response.”
Philip Wee, senior FX strategist at DBS Bank Ltd.
“The main surprise was the one to 1.5 years to conduct the broad perspective review. This is too long for the yen bulls anticipating a tweak in June. Impatient yen bulls cannot live with a patient BOJ.”
Clearly Dovish
Shoki Omori, chief desk strategist at Mizuho Securities Co.
“As for the conduct of monetary policy, language slightly changed but the wording clearly looks dovish.”
“Doesn’t look like they will change policy in a big way soon if Governor Ueda is going to emphasize his ‘time-axis policy’. Rates will continue their supply/demand game and the yen will be driven by overseas factors, mainly dollar and euro.”
Better Communication
Charu Chanana, senior markets strategist at Saxo Capital Markets.
“It appears that BOJ’s new chief Ueda is looking to improve the image of the central bank on its communication. Also, it is becoming increasingly evident that Ueda will leave the door open for policy tweaks at the announcement today, suggesting yen gains could be possible.”
Now Has Flexibility
Harumi Taguchi, principal economist at S&P Global Market Intelligence
“If the BOJ remained too constrained to the yield target in its forward guidance it could have made it difficult to make adjustments going forward.” The removal of the rates guidance has increased scope for flexibility.
–With assistance from Marcus Wong, Masaki Kondo, Chester Yung, David Finnerty, Winnie Hsu and Yuko Takeo.
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