In its latest note released in the last US session, the Research Team at HSBC offered their thoughts on the BoJ’s JGBs reduction move and its impact on USD/JPY.

The initial catalyst for JPY strength was a BoJ announcement that it had reduced bond buying in the 10-25 year part of the curve by JPY10bn in December, and by a similar amount in bonds with a maturity of over 25 years.

The BoJ has cut its purchases before but typically for maturities under 10 years.

USD-JPY had been losing momentum anyway ahead of 113.20 at the time of the announcement. This may explain the exaggerated response to what was a rather modest trimming of bond purchases and, of itself, not really a signal of a pivot to the exit.

Reports in the Japanese press (Kyodo) that the BoJ may increase its FY18 GDP forecast may also have contributed to the move lower in USD-JPY.

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