Markets are staying in consolidative mode today as investors are awaiting tomorrow’s BoJ announcement. Yen recovers broadly today as BoJ started its two day policy meeting. Expectation on the post meeting announcement is high considering that yen is down more than 8% against dollar since December and nearly 11% against Euro. It’s generally expected that BoJ would expand the stimulus program, probably by another JPY 10T. The move would be significant in a way that it’s the firs time in more than 10 years that the central bank expands easing in two consecutive meetings. Also, in response to the new prime minister Abe’s pressure, BoJ would likely double the inflation target to 2%. A joint statement would be issued with the government in stating BoJ’s commitment to end deflation and bring recovery. These are well priced in the markets and as mentioned before, the BoJ needs to do more to extend the selloff in the oversold yen. Without moves like open-ended easing, or removal of deposit interest, we might see larger after-the-news rebound in yen. Nonetheless, the overall trend in yen would remain bearish no matter what happens tomorrow. It’s been very clear that Abe would choose a dove to be the next BoJ governor after Shirakawa ends his term in April. And more aggressive easing is expected after that. Recent selloff in yen prompted some talks that BoJ could adopt a slower pace of easing as the yen is already weak. But it’s believed that USD/JPY at around 90 is still at a level that’s troubling exporters. And indeed, BoJ needs to at least maintain its easing pace until USD/JPY breaks above 100. So, any post BoJ pull back in yen crosses are treated as buying opportunities for another leg up in short to medium term.
EasyForexNews Research Team