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The last central bank to announce its interest rate decision this week was the Bank of Japan (BOJ). It did not disappoint, as it adjusted the yield curve control program, triggering intense volatility in the JPY pairs.
Already from yesterday, the markets sniffed something is coming up. A report from Nikkei suggested that the BOJ is on track to tweak its current policy, and the yen strengthened across the board.
Today, we’ve had a confirmation that the BOJ is more flexible with the bond yields. With an 8-1 majority vote, the central bank decided that it would allow the 10-year JGB (i.e., Japanese Government Bonds) to rise above the 0.5% market cap all the way to 1%.
As such, the BOJ adds flexibility and offers to buy at 1% every business day.
When a central bank buys government bonds, it eases the monetary policy. The Bank of Japan has done that for quite some time now, and by March 2023, the share of JGBs held by the BOJ has reached a record high of 53.34%.
In the meantime, inflation keeps rising. Tokyo core CPI just registered the biggest monthly increase over the last 30 years.
The news out of Japan overnight triggered intense volatility in JPY pairs. However, it is unlikely that the central bank will abandon the yield curve control program given that its inflation forecast for 2025 remains unchanged at 1.6^.
Therefore, the yen’s outlook should not change, and the bias remains bearish in the short and medium term.
The post More flexibility from the Bank of Japan should not derail the yen’s outlook appeared first on Invezz.