The Yen has strengthened in response to the BoJ’s decision to adjust YCC policy settings to make them more flexible.

With the BoJ still not confident that inflation can be sustained at their 2.0% target, the BoJ is trying to differentiate today’s decision to make YCC more flexible from any future decisions to tighten monetary policy. 

The commitment to maintain negative rates should help to dampen speculation over rate hikes through the rest of this year helping to dampen upward pressure on yields and the JPY. 

Overall, the developments are in line with our expectations and we maintain our forecast for further Yen upside in the year ahead.