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Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes USD/JPY outlook ahead of Tuesday’s Bank of Japan meeting.
Fright-night for BoJ-watchers
The BoOJ won’t hike rates, but we see a 50% chance that the de-facto cap on the 10-year JGB yield will rise from 1% to 1.5%.
USD/JPY continues to track yield differentials, so it’s hard to see how we can avoid a reaction one way or the other from the decision on Tuesday.
If they keep the cap unchanged, we will probably see another spike above USD/JPY 150 and more intervention talk.
If they raise the cap, every 10 bps JGB yields rise relative to Treasuries can drag USD/JPY down by about 2%, and take EUR/JPY down by as much or more.
This article was originally published by Fxstreet.com. Read the original article here.