UBS Morning Adviser

This week seems to be getting off to a slow start and on the face of it for good reason: the Fed and BoJ are to decide on policy within a day of each other and the market is expecting ‘conservative’ messages from both. The FOMC is certainly looking at damage limitation in the wake of the US shutdown. Meanwhile, BoJ Governor Kuroda has repeatedly warned against premature expectations of additional easing barely a year into QQE. We are sympathetic to these views, but similarly question whether markets have taken such event risk pricing into the extreme: a simple rhetoric shift to disrupt calendar expectations for both central banks’ upcoming policy steps, would be enough to tip the balance in USDJPY.