The BoJ’s very subtle actions show that Governor Ueda is mindful of even small adjustments higher to YCC targets and their impact on the economy. 

We think Ueda will wait patiently for further signs of wage inflation and could raise the YCC upper bound at the April 26th BoJ meeting (after spring wage negotiations) at the earliest. That dovish BoJ stance for Q4 2023 and Q1 2024 means that US-Japan rate differentials will be driven by Fed policy and US data. 

Japan’s authorities could intervene to slow Yen weakness at 152 (they were very vocal about one-sided moves after the October BoJ decision), but our view for higher US yields points to USD/JPY peaking at 154 heading into a December Fed hike.

USD/JPY – Q4 2023: 152 | Q1 2024: 154