Since the current cap on 10-year JGBs is at 1.0%, it is likely that any tweak to YCC on October 31 would allow yields to push above this level. Allowing JGB yields to increase should remove some downside pressure on the value of the JPY.

While we expect that USD strength will dominate in the coming months, a policy tweak from the BoJ would likely reinforce psychological resistance at the 150 level.

A steady BoJ policy decision this month is likely to enhance the downside pressure on the JPY vs. the USD and increase the risk of a move toward 152.

Our forecast of a move back to USD/JPY 148 on a three-month view assumes further policy normalisation by the BoJ and continued speculation of a potential exit from negative rates in 2024.