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On 19 March, the Bank of Japan announced a few tweaks to its policy easing framework, including a more explicit YCC range. USD/JPY fell slightly as the clarified YCC range was larger than what was widely assumed by the market earlier but economists at HSBC expect USD/JPY to quickly resume trading in line with the broader USD direction.  

Key quotes

“Notably, the BoJ provided an explicit Yield Curve Control (YCC) range of +/- 25bp around 0% for 10-year yields. Although this range was larger than what was widely assumed by the market in the past (+/-20bp) and was also unexpected, the announcement did not put much downward pressure on USD/JPY.”

“This review was not a game-changer but neither was it pointless. So, we see it as a small distraction against bigger things happening externally. We expect USD/JPY to quickly resume trading according to the broad USD direction. We still see USD/JPY fluctuating with an upward bias over the near term before correcting in 2H21 alongside 10-year US yields later.”