The Bank of Japan shifts its yield curve control (YCC) stance with obvious consequences. USD/JPY could be into the 120’s sooner than analysts at MUFG Bank expected.

BoJ’s surprise will impact all FX market players

“The BoJ has surprised the markets by announcing an adjustment to its YCC policy. Nobody will be surprised to see the 10yr JGB yield jump close to the top of the new trading range around zero percent of +/-50 bps.”

“To us this decision will impact all FX market players – corporate hedging behaviour; investor hedging behaviour; speculative behaviour; and capital flows.” 

“The shift from the BoJ merely reinforces a strong and compelling view that the divergence at the heart of the surge in JPY selling in 2022 is going to reverse in 2023, resulting in a reversal of JPY selling that took the Yen to record levels of under-valuation.”

“USD/JPY could be into the 120’s sooner than we expected.”