FX alert: BoJ keeps it cautious

As expected, the BoJ held rates at 0.50%, and the message was classic BoJ: wait and watch. They trimmed their FY2025 core CPI forecast to 2.2%, taking some steam out of the inflation narrative but keeping the bias intact. Global trade headwinds, especially from the U.S. tariff cycle, were flagged as downside risks, but there was no apparent appetite to shift the policy needle, and the rate hike can got kicked further down the road.

At first glance, today’s Boj hold and ensuing statement was less aggressive than FX markets anticipated—USD/JPY surged as the yen weakened—but let’s get straight to the point: the yen appears overbought after continuous dollar pressure and is ready for a retracement. That said, with nearly 100 basis points of Fed easing still baked into the U.S. curve, this dollar rally looks threadbare unless we get a fresh risk‐on spurt or a surge in U.S. yields. Absent a clear hawkish steer from Tokyo, USD/JPY is back in RoRo’s hands—surging on US equity rallies, tumbling on stocks’ sell‐offs—so brace for choppy chop until policy divergence reasserts itself.

But I’m not chasing anything just yet. Today’s price action is riding on thin liquidity, and reflexively, I want to hear the Q&A before putting real chips on the table. If Ueda sounds even remotely hawkish—talking up FX inflation pass-through again or leaning on inflation stickiness—we could see 142 in a heartbeat.

The view

I’ve been preaching the technical snapback, but I’m dialling in a more defensive posture—no one’s forgotten it took 18 months to ink the last U.S.–China deal, and this decoupling playbook is built on far deeper, structural fault lines. We’re staring at a full-blown headline roller coaster: critical supply chains, tech IP carve-outs, strategic commodity embargoes—every twist will spark knee-jerk swings. Don’t bank on waking up to a “tariff truce” tomorrow: Trump’s laid it bare that any accord must be on U.S. terms, which means protracted haggling, tit-for-tat concessions and the kind of drawn-out negotiation that feeds volatility. In the meantime, I’m trimming beta, beefing up cash and rotating into defensive sectors—because until there’s real policy clarity, this market’s trading on rumour and repricing risk at every headline.

Take this with a bull market with a health warning. In a classic risk-on regime, equities rally while Treasuries lag; in risk-off, bonds bid and stocks skid. When both go up together, it’s only a matter of time before they tumble in unison. Are dip-hunting quants front-running every whiff of tariff détente and ignoring the growth drag ahead? Or are bond bears foolishly overlooking the inflationary punch of reciprocal levies? Maybe both asset classes are simply baking in the best-case scenario way too early?

April was a seismic seesaw, yet the Nasdaq staggered out unscathed—hardly a “death knell for U.S. exceptionalism.” We survived a 16% bloodbath, ripped back nearly 18%, stalled at the 50-DMA… then flashed a blitzkrieg melt-up in the final ticks. Blink and you’d miss the whole tape spectacle.

Here’s the killer stat: wafer-thin liquidity turned micro-orders into 60-point tremors. Top-of-book depth is sub–$3 mm (vs. $13 mm norms), and the ten busiest names trade like sub-penny flyers—hence the outsize rip into Meta and Microsoft prints after hours.

Under the hood, it’s a fundamental mixed bag. Q1 GDP was skewered by a tariff-front-run import deluge, ADP and PMI flagged cracks, then PCE softened stag-fear briefly… only to watch oil crater below $60 on whispers that Riyadh’s throwing in the towel on price floors. Earnings mostly overdelivered, but wobbles in SNAP, SMCI, NCLH, SBUX and BKNG lit caution lights. Retail’s still buying the pandemonium—until headcount cuts land—so May’s NFP is the next showdown. AAII data shows retail equity allocations bleeding from 70% to 66% since January—a slow drip toward recession territory.

On the global front, factory PMIs are limping, shipping and commodity flows have been flashing distress signals, and oil’s worst April since 2021 seals the deal. U.S. Treasuries have split personalities: 10-year yields popped on sticky inflation, two-years plunged on rate-cut mania. But of course, correlations don’t make sense, making it challenging to hold a longer-term view.

Positioning? It’s the ultimate “bad news is good news” rerun: bonds, oil and copper are screaming recession, while equities rocket on Fed-put repricing. But don’t be fooled—the data storm is brewing. When the next crack arrives, it won’t be quants or algos misfiring—it’ll be the real economy catching up with the tape.