What could be the impact of the BoJ on USD/JPY?

Ahead of the Bank of Japan monetary policy announcement on Friday I have looked at the options that the BoJ could take on monetary policy and what impact this could have on the yen and the major currency pair USD/JPY. I discuss the potential scenarios of various easing measures and it looks as though the BoJ is likely to disappoint.

Kuroda BoJ

Positive for USD/JPY

  • Helicopter money            Positive talk – steps discussed
  • ETF purchases                  Increased to 10 trillion yen per year (from 3.3tr yen currently)
  • JGB purchases                  Increased to 90 (or even 100) trillion yen per year
  • Negative rates                   Cut of 20bps or more

Comments: There is little expectation of positive talk of helicopter money discussion and therefore this is the most unlikely course of action. However, if Kuroda and the BoJ were to massively surprise then this would all be considered moving the monetary easing to the next level and the BoJ really acting decisively.


Neutral impact on USD/JPY

  • Helicopter money             Not mentioned/Negative talk
  • ETF purchases                   6 trillion yen per year (from 3.3tr yen currently)
  • JGB purchases                   Stay at 80 trillion yen per year
  • Negative rates                    Cut of 10 bps or less

Comments: This is the most likely package of action (in some form or other). General easing measures without talk of helicopter money will be considered as neutral medium term as the market will be questioning the BoJ’s ability to make a difference.


Negative for USD/JPY

  • Helicopter money              Not mentioned/Negative talk
  • ETF purchases                    Hold at current 3.3 trillion yen per year
  • JGB purchases                    Stay at 80 trillion yen per year
  • Negative rates                     Cut of 10 bps or less

Comments: This is rather unlikely as a packaged course of action. Market expectation for some extension of easing has been built up in recent weeks and with the strength of the yen of the past 6 months since the first move to negative rates, the BoJ will be mindful that something needs to be done to prevent another drive of yen strength.


General expectation

There is a low expectation of a positive discussion of helicopter money and therefore the medium term impact on USD/JPY is likely to be neutral at best. Depending upon the composition of the EFT purchases, JGB purchases or further cuts into negative rates, there could be a near term uplift in USD/JPY, however I would expect this to be short-lived (remember the move in January when the yen initially weakened on the first announcement of negative rates only to then strengthen sharply again, pulling USD/JPY lower.

Today’s announcement of 28 trillion yen of fiscal stimulus has already weakened then yen above 105 again and this means that moving into the meeting the yen has depreciated by 5% (from 100 to over 105) since the prospect of further fiscal stimulus and monetary easing was back on the table. I still see USD/JPY as a sell into strength and market expectations moving into the BoJ on Friday would suggest that it will be rather difficult to hit fairly lofty expectations.

Medium to longer term technical analysis of the yen pairs suggests that rallies continue to be seen as a chance to sell for a stronger yen. I therefore see downside moves across Yen pairs as being likely in the coming weeks:

  • USD/JPY back to 100
  • EUR/JPY back towards 111
  • GBP/JPY back towards 129




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