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“Ahead of the August 2 BoE meeting, the July 31 BoJ policy announcement will be a key market focus,” Rabobank analysts note.

Key quotes

“Over the past week speculation has been circulating that in order to support the banking  sector, the BoJ may be prepared to allow the yield curve to steepen. Such talk is not unprecedented and was instrumental to the BoJ’s adjustment to its policy in September 2016 when it introduced the yield curve control element to the QQE programme. Back then the BoJ  recognised that “an excessive decline and flattening of the yield curve may have a negative impact on economic activity by leading to a deterioration in people’s sentiment, as it can cause uncertainty about the sustainability of financial functioning in a broader sense”.

“It concluded that it needed to “work toward the formation of an appropriate yield curve” and that among other factors, the Bank should consider the “impact of a decline in JGB yields on financial functioning”. These changes, however, were part of an overhaul which was well billed beforehand. While it is it impossible to rule out any tweak of BoJ policy in future months, it is very unlikely that the BoJ will want to step back from extremely accommodative policy settings currently.”

“Consequently we expect the JPY to soften following the BoJ meeting next week. We see USD/JPY edging up to 113.0 on a 6 month view.”