Is the Speculative JPY Long Ahead of the BoJ the Right Play?
The BoJ has said that it will not announce any tweak to its yield curve control policy ahead of any changes. They will just change it when it considers this the right time. So this has led some investors to long the JPY ahead of the BoJ meetings this year. However, is that view misplaced?
Will the BoJ tweak its policy on Friday?
Firstly, in the argument for a change, deflationary forces seem to be gone. Take a look at the Japanese core inflation print below:
This is a clear indication of rising inflation. However, Governor Ueda has recently said (July 18) that there is ‘still some distance to sustainable achieve 2% inflation target’. So, the inflation picture is not so clear to the BoJ’s Governor as it is too much of the watching world. Surely you would expect the BoJ to at least increase the inflation expectation for Japan if nothing else.
Secondly, the IMF has weighed in on the argument recently that the IMF said that Japan’s inflation risks are to the upside and it recommends that the Bank of Japan should be flexible and move away from its yield curve control program.
Which pairs look vulnerable to a BoJ shift?
If the BoJ does go ahead and tweak its Yield Curve Control policy and/or raise interest rates then the JPY should gain. This should send the GBPJPY, AUDJPY, and USDJPY all lower. However, some analysts see this move as very well-telegraphed and the impact on the JPY may be less than some are expecting. So, the chances of smaller-than-expected JPY moves should be kept in mind. Check out the triangle structure forming on the GBPJPY daily chart. A potential break of that structure lower on a BoJ shift in policy is a key technical picture to be aware of.
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