BoJ

Whether it’s any major FX pair against the yen or the Nikkei 225, the last of least resistance right now seems to be higher with the BOJ maintaining its ultra-dovish stance.

Whether it’s any major FX pair against the yen or the Nikkei 225, the last of least resistance right now seems to be higher.

USD/JPY is trading 40 pips away from multi-decade highs as upstream inflationary pressures in Japan are coming off hard. Perhaps that explains we've had no verbal intervention attempts from the government today?

If you believe the Fed is done hiking rates and will be forced to ease policy aggressively next year, it’s hard to be bullish USD/JPY or the Nikkei 225 given the role yield differentials and FX fluctuations have played in underpinning both this year.

Japan’s Nikkei 225 has endured a whirlwind 24 hours, mirroring the USD/JPY in the wake of the Bank of Japan’s (BPJ) October monetary policy meeting. It’s surged more than 1000 points from the lows hit on Tuesday, largely reflecting stiffening tailwinds for Japanese exporter earnings.

USD/JPY and Nikkei 225 are rising in the wake of the Bank of Japan’s (BOJ) latest interest rate decision, reacting to a smaller-than-expected adjustment to the banks yield curve control (YCC) program.

1-day implied volatility has blown out on USD/JPY ahead of today’s BOJ meeting, with its 100-pip implied move coming in at 292% of its 20-day average and the 5-day implied volatility sitting at 179 pips.

USD/JPY is showing signs of rolling over, but remains in a longer-term uptrend ahead of the BOJ and Fed

Should the BOJ fail to reach escape velocity from ultra-easy monetary policy settings, it will have implications for the Nikkei 225 and USD/JPY as we move towards 2024.

Nikkei 225 sits on a major support, making near-term price action potentially important for its longer-term trajectory.

USD/JPY likely to continue grinding higher as bulls navigate the evolving threat posed by potential Bank of Japan intervention.

Should the Japanese government order the Bank of Japan to intervene in FX markets, it deserves the savage USD/JPY bounce that will almost inevitably be coming its way.

The next few days will be pivotal for USD/JPY as rate decisions from the Fed and BOJ collide, providing an environment where we could get an explosive move in either direction.

Whilst the Fed are expected to hold rates steady in September, next week’s FOMC meeting also includes the quarterly staff projections. And changes to dot plot or CPI estimates can be as good as a hike where market reactions are concerned. The odds of another BOE are next week are not as high as they were, which makes the preceding inflation report paramount to expectations for their next decision. And whilst the BOJ are unlikely to act, that is no reason to drop your guard given their tendency to surprise once in a while. We also have flash PMIs for major regions and inflation data to mull over.

With EUR/JPY and GBP/JPY testing critical support, price action over the next 30 hours will go a long way toward determining if the year-to-date trends extend or end from here...

With Japan’s domestic economy struggling on the back of faltering household spending, it’s not difficult to see why doubts are emerging as to whether the BOJ will be in a realistic position to begin normalising policy

Markets may not have to wait until well into 2024 for the BOJ to tighten monetary policy, sending USD/JPY sharply lower.