Derek Halpenny, European Head of GMR at MUFG, suggests that the shift in BoJ monetary policy from targeting an expansion of the monetary base to targeting a level of yield has been viewed by most market participants as a form of implicit tapering of JGB buying and comments today from Governor Kuroda have certainly reinforced that view.

Key Quotes

“Governor Kuroda stated that JPY 80trn worth of purchases might not be needed in order to control the 10-year yield. He added that buying JPY 60 or JPY 70trn of JGBs would still mean the monetary base would expand. Of course you can’t target both a zero percent 10-year yield and commit to expanding the monetary base by JPY 80trn per year, which is essentially the current stance of the BoJ. In reality, asset purchases will decline if financial market conditions allow. But we remain sceptical of the BoJ’s ability to “control” yields. If global deflationary pressures intensify, yields will fall and the BoJ will have to cut the target. If global inflationary pressures rise, the BoJ would at some point have to raise the target rate.

The best scenario for Japan of course would be a rise in global inflationary pressures that forces the BoJ to actively buy JGB to cap yields. That might then result in some form of revival in ‘Abenomics’ and yen selling. In fact, equity inflows from abroad have recently turned favourable suggesting some improved sentiment amongst foreign investors.

Fiscal year-to-date, foreign investors have sold just over JPY 1trn worth of Japanese equities – but most recently there has been three consecutive weeks of buying by foreign investors for the first time since April. If this improved sentiment can be maintained it might signal another leg higher for USD/JPY over the coming weeks.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD clings to daily gains above 1.0650

EUR/USD clings to daily gains above 1.0650

EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.

EUR/USD News

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD recovers toward 1.2450 after UK Retail Sales data

GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.

GBP/USD News

Gold holds steady at around $2,380 following earlier spike

Gold holds steady at around $2,380 following earlier spike

Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.

Gold News

Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium

Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in

Bitcoin price shows no signs of directional bias while it holds above  $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research. 

Read more

Week ahead – US GDP and BoJ decision on top of next week’s agenda

Week ahead – US GDP and BoJ decision on top of next week’s agenda

US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.

Read more

Forex MAJORS

Cryptocurrencies

Signatures