**As seen in Risk In The Week report 10/27/23, subscribe at cablefxm.co.uk/reports
The bank of Japan left policy unchanged at -0.1%, as expected. We have not seen an official adjustment in either YCC policy since July, when the 10yr target band was widened. Since then, the central bank announced unscheduled bond purchases to defend the upper band of their YCC program. Recently, the 5-year and 30-year JGB yields have risen to the highest levels since 2013, 10-year swaps upward trend hit 1%, matching the BoJ's effective yield cap. BoJ Governor Ueda has mentioned that if their price goal is in sight, they will mull ending YCC and negative rates. Ueda added that the distance to reach such levels hasn't changed much. However, BoJ's own measure of inflation reached 2% in September, Japan weighted median prices have not been this high since 2001. Adding to this, the most recent Tokyo core CPI print rose to 2.7% Y/y vs the prior 2.5%, the capital's services price measure accelerated to the highest level since 1994 at 2.1%. The market is now pricing the BoJ to end NIRP by next year, the March tenor implies a 10bps rate hike in the policy rate. If expectations were met, this would still leave a rate premium of about 550bps in the dollar vs the yen. The desk at MUFG said that it will be impossible to keep USD/JPY under 150.0 given the current BoJ's policy stance. Nevertheless, they noted increasing political pressure to contain inflation, PM Kishida has recently proposed an extension of subsidies for gasoline, electricity and household gas. MUFG said there is growing speculation of another YCC adjustment anytime between end of 2023 and early next year. It is worth noting gamma demand for USD/JPY rising in recent weeks, the 1w IV tenor now stands at 10.6%, the highest in a month but looks subdued when compared to the readings heading into the July meeting (17%-18%).
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