The Yen has weakened sharply after the Bank of Japan’s (BoJ) decision to keep the monetary policy settings and yield curve control policy unchanged. Nevertheless, the BoJ update does not alter MUFG Bank’s bullish outlook.

Expectations for imminent shift in YCC settings disappointed 

“BoJ’s decision to leave YCC policy settings unchanged has resulted in the Yen weakening by around 2% against other major currencies. The scale of the initial sell-off is broadly in line with our expectations for a 2-3% decline for the JPT if the BoJ left policy settings unchanged.”

“There is a risk though that the Yen sell-off could still extend further in the near-term. The decision is unlikely to completely remove speculation that another shift in policy will be forthcoming at upcoming policy meetings which will help to dampen how much further and for how the JPY weakens. The BoJ’s next policy meeting though is not until 10th March so speculation over an imminent shift in policy could remain lower in the month ahead.”

“We expect market participants to remain sceptical over the sustainability of YCC policy settings. Furthermore, the upcoming end to Governor Kuroda’s term at the end of April will continue to encourage speculation over a shift in policy under new leadership. In these circumstances, the Yen sell-off should prove temporary and we maintain a bullish outlook for the JPY in the year ahead.”