BoJ keeps policies unchanged, Yen tanks

The just-concluded Bank of Japan (BoJ) meeting was a key focus for markets with policy normalisation a major theme.

But the BoJ left its YCC policy unchanged despite widespread speculation that it would enact another tweak to its curve control band.

Recall just this past December, policymakers shocked markets by adjusting the cap for only the third time in seven years. With the market pushing yields beyond that cap in recent days, bond vigilantes were hit hard as that trade reversed sharply and yields plunged.

Also, JPY suffered big losses, being the only G10 decliner against the US dollar so far today.

 

But the BoJ may have its hands full in the coming weeks as speculators adjust their expectations.

The new BoJ Governor will be announced in the coming weeks and take the helm in April.

Governor Kuroda has laid the groundwork in some ways by widening the band last month. The pressure will increase for more changes going forward.

USDJPY pullback after BoJ disappoints bulls

Initial resistance in USD/JPY is the 21-day simple moving average at 131.62. The midpoint of last year’s rally sits at 132.713.

Although USD/JPY is now trading back above the psychologically-important 130 level, at least Yen bulls may take heart from the fact that this FX pair remains firmly in the downtrend that began back in October.

USDJPY is also still trading at levels lower than prior to the BoJ shocker on December 20^th.

 

UK CPI and jobs data boosts GBP

It’s the middle part of the month when we get a bunch of UK data releases.

• Yesterday saw the November job figures continue to show resilience with wage growth rising 6.4%, a tenth higher than expected and the unemployment rate remaining unchanged at 3.7%.
  The former is increasing at near a record pace which leaves the BoE with very little room to manoeuvre with regards to the rate decision at the start of next month.
   
• The CPI numbers this morning hit estimates with the headline easing to 10.5% but it remains elevated and way beyond the bank’s 2% target.

Markets were pricing in just under a 50bps hike before the data which offered GBP support.

Cable was firmer yesterday and enjoying a solid rebound from the sub-1.19 levels seen last week.

Charts look positive again for more upside after that blip but the major needs to close above 1.23435 to spark buying past the 1.245 Fibonacci line, which is the 61.8% retracement from 2022’s drop.