USD/JPY: BoJ tweaks policies provide no reason to sell the yen – MUFG

The USD/JPY pair is broadly unmoved but has drifted lower gradually from the intraday high earlier today at around 109.10 with the policy announcements from the Bank of Japan certainly not offering any reason to sell the yen further, per MUFG Bank.

Key quotes

“Our sense is that even though expectations were low on what the BoJ could deliver in its policy review announcement, there is still an element of disappointment. There was certainly nothing surprising announced and the measures taken, while numerous, were broadly tweaks.”

“The BoJ scrapped the minimum threshold of ETF buying of JPY 6trn with the focus now on the Topix rather than the Nikkei 225. The larger Topix market will help improve the efficiency of that particular policy measure. With the Japanese equity market at multi-decade highs, the removal of the minimum threshold is a signal that the BoJ’s support for the equity market will likely be more about reducing volatility than simply buying to meet a minimum threshold.”  

“While the BoJ announced some changes that implies the BoJ is readying for the possibility of cutting short-term rates, there was no formal change in the guidance and there is certainly no real sense of a significant shift by the BoJ in moving toward additional rate cuts. That could change of course going forward but the takeaway will be that there appears to be still a degree of reluctance to further cut rates.”

“While there have been some days where it looked like there was some speculative selling of the yen in anticipation of something more dramatic in regard to negative rate prospects, the key driver for USD/JPY remains UST bond yields. But taken in isolation, the BoJ announcements certainly do not provide reason for yen selling and disappointment may encourage JPY buying.”