BOJ Bond Market Operation Eyed for Clue on USD/JPY After FOMC
(Bloomberg) -- Bank of Japan’s response to rising Japanese government bond yields will determine USD/JPY’s trend after FOMC’s decision this week, says Yujiro Goto, London-based senior FX strategist at Nomura International Plc.
- If BOJ’s stance of wanting to rein in JGB yields is confirmed, it will support expectations for a widening gap in interest rates going into the Fed meeting and this will be yen negative
- Fed’s rate hike is basically priced in and consensus is it won’t alter expectations for two rate increases next year
- There’s risk Fed may sound a bit dovish on dollar appreciation and rising yields
- Fed decision may spur profit-taking but unlikely to change trend significantly
- But if USD/JPY trend is to change, it would come when BOJ lets Japanese long-term yields to rise past 0.1%
- Probability isn’t high but such scenario is bigger risk to changing trend in USD/JPY
- 10-year JGB yield rose to 0.08% on Monday, highest since mid-Feb
- USD/JPY falls 0.1% to 114.90 after rallying as much as 0.7% yesterday to 116.12, highest since Feb. 8
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HALISTER1Source: BFW (Bloomberg First Word)
People Yujiro Goto (Nomura Holdings Inc)
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