Analysts at TD Securities (TDS) offer a brief preview of what they expect from Friday’s Bank of Japan (BoJ) monetary policy announcements, the first decision under new Governor Kazuo Ueda.

Key quotes

“For the first meeting under Governor Ueda, the BoJ is expected to keep all of its policy levers unchanged. We think it is highly likely that a formal policy review is announced. That should put the next YCC shift as early as June. Generally, we think assuming a YCC change sooner rather than later is a prudent strategy. Lifting the yield cap to 1% as its next move has a lot of appeal.”

“The BoJ will not provide advance warning to a YCC change and will instead prefer to do it when it is least expected. As such, one cannot fully rule out a change at any meeting. We also think they would prefer to make a shift when the Fed has neared or completed its tightening cycle as there is less natural upward pressure to push global yields higher.”

“For this reason, we like owning some yen upside through the meeting via a 1m 132/129 USDJPY put-spread. We also like the tactical setup going into the Fed meeting and NFP meeting next month. The yen should trade with an asymmetric bias given the correlation persistence that it shows to the red/green SOFR strips (i.e. cut pricing), with particular focus to calendar spreads beyond U4.”