According to Nomura, the BOJ’s reaction today will be important for JPY, following their decision to not conduct its fixed price JGB purchase operation on Feb 2nd..
Key Quotes
"At the press conference after the December meeting, Governor Kuroda said that “the current long-term yield target is set around 0% and it is meaningless to talk about this as exactly 0% or between -0.1% and +0.1%,” suggesting a deviation from +0.1% is possible. In this regard, today’s inaction is not a big surprise, but the decision disappointed the market and the 10yr yield rose further. The inaction is also likely putting appreciation pressure on JPY."
"Volatility in JGB yields has been declining since the introduction of the yield curve control policy in September, and we judge the low volatility in the JGB market as important for Japanese investment in foreign bonds. If the BOJ allows the 10yr yield to keep rising, foreign bond investment momentum could slow, especially amid uncertainty on the US’s policy stance, putting upward pressure on JPY."
"Thus, we think a further rise in 10yr JGB yields to breach 0.15% at the current pace would not be desirable for the BOJ, while Governor Kuroda maintained his dovish stance at the press conference this week."
"Many Japanese policymakers defended Japan’s macro policy framework too. Long-term (5-10yr) and short-term (up to 1yr) JGB purchases by the BOJ are expected tomorrow, but the BOJ may purchase super-long term JGBs or it could increase the 5-10yr buying amount again. New policy measures, such as a fixed price JGB purchase operation and unlimited fixed-rate funds-supplying operations, are also possibilities."
"If the BOJ shows its commitment to its yield curve control policy, the impact of positive US news on USD/JPY should remain strong. A positive surprise from US nonfarm payrolls could be amplified, for example. By contrast, inaction tomorrow could weaken the positive impact of USD/JPY from external factors."
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