- USD/JPY is consolidating just above the 103.00 level as eyes turn to the incoming BoJ rate decision.
- The bank is expected to leave its monetary policy setting unchanged but may extend corporate funding programme.
USD/JPY closed Thursday FX trade with losses of 0.35% or roughly 35 pips, the pair dropping from around the 103.40s to its lowest levels since March and briefly sliding under 103.00. At present, the pair is trading just to the north of the 103.00 level again.
BoJ Rate Decision Incoming: Here’s what to expect…
Analysts expect the BoJ to keep its monetary policy setting unchanged with rates to be left unchanged at -0.1% and the 10-year Japanese government bond yield target to be left unchanged at around zero. The bank is also to expected to continue to cap annual asset purchases at JPY 12T for ETFs and JPY 180B for J-REITs and maintaining amounts outstanding at JPY 2T for CP and JPY 3T for corporate bonds.
The bank is also expected to extend its Covid-19 countermeasures aimed at easing corporate funding strains beyond March 2021 as infections in the country continue to rise as winter approaches.
Bank of America Global Research says that the “likely absence of major actions by the BOJ in the near future justifies the lack of market interest in its policy. The BOJ’s loose monetary policy stance maintains JPY’s funding currency status”.
“Since the COVID-19 outbreak”, continues the bank, “USD has also traded as a funding currency with the Fed focusing on supporting the economy and generating inflation. With the two currencies funding the latest risk asset rally”.
Finally, the bank adds that “USD/JPY’s volatility has fallen while cross-yen has been driven by risk sentiment. From this perspective, further crowding of positioning in risk assets could pose a downside risk to cross-yen (but not USD/JPY).”
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