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Analysts at Nordea Markets suggest that it is no secret that the JPY yield-curve has re-steepened versus peer yield-curves, since the slight twist to the YCC was first rumoured.

Key Quotes

“So far the reaction in JPY has been limited (at least to the YCC announcement); Hence BOJ might have succeeded in twisting the curve without explicitly tightening policy from an FX perspective.”

“A material relative re-steepening is maybe not the most obvious driver of FX, but it matters sufficiently much for portfolio flows in e.g. Japanese lifers to play a role in spot moves also.”

“The key person behind the twist of the YCC seems to be CTO of BoJ Masayoshi Amamiya, who has a big influence on Governor Kuroda (Almost the Per Jansson of BoJ). And there are signs that Amamiya means business, as a new move towards a +/- 40 bp trading range for the 10yr point has already been mooted. While we judge that Bank of Japan wouldn’t welcome a positive repricing of the JPY (which could be prevented by buying a lot of shorter JGBs), they risk it by moving further in this direction.”

“The loyal reader also noted that USD/JPY was the only G-10 USD-pair that didn’t perform at the latest “Sumo-SOMA-day” (15th of August).”

“If Amamiya means business, you shouldn’t rule out a move in USD/JPY that compares to the 2017 development in EUR/USD.  We stay long the JPY via our short NZD/JPY position.”