The Bank of Japan announced a surprise change in its yield curve control policy. The immediate impact on the yen has been sizeable, with USD/JPY dropping more than 3%. The pair could slump under the 130 level, economists at ING report.
“The BoJ announced a surprising change in its YCC policy. The target band for the 10-year JGB has been widened to +/- 0.50% from the previous 0.25%, essentially allowing higher interest rates in the current inflationary environment despite still officially targeting 0.00% as the outright target. The move was accompanied by an increase in the amount of JGB purchases, from JPY7.3 tn per month to 9 tn.”
“For now, we think risks remain skewed to the downside for USD/JPY into the festive break, and we cannot exclude a break below 130.00 – also given the generally soft Dollar environment.”
“For now, the negative reaction in global equities is capping pro-cyclical currencies, and offering some USD support on balance, but broader dollar weakness is surely a possibility in the near term. DXY could press 103.50 by the end of this week.”
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