BoJ kept the USD/JPY cross under pressure – Danske Bank

Senior Analyst, Jens Nærvig Pedersen at Danske Bank, explains that the Bank of Japan has cut back bond purchases in the long end of the curve (+25Y), and the announcement has kept the cross under pressure yesterday despite a general ‘risk - on’ mode on financial markets.

Key Quotes

“In our view, the sell-off in USD/JPY reflects the combination of last week’s strong sell-off in JPY and very stretched positioning. We believe yesterday’s announcement to cut back bond purchases in the long end of the curve (+25Y) should not be interpreted as an indication that an exit from quantitative easing is drawing closer. It is merely a reaction to the recent flattening of the super-long JGB yield curve as the BoJ is very focused on the shape of the yield curve.”

“In terms of the BoJ, focus in coming weeks will centre on the BoJ’s personnel changes as Governor Haruhiko Kuroda’s term ends on 8 April and Deputy Governor Iwata’s and Nakaso’s terms end on 19 March. The cabinet with the consent of the diet appoints the BoJ governor and deputy governors, and it is widely expected that the decision will be made before the end of February. We still see USD/JPY trading mostly sideways within the 111.65- 114.50 range near term, targeting 113 in 1-3M.”