📝Expect Widening Bias For JPY Basis In November: MUFG Strategy

The USD strengthening and JPY weakening trends have started to reverse course somewhat. Resource prices have started to shift from their highs. Not only USDJPY spot rates and JPY basis, but also the Nikkei Average and commodities pricing could change little by little.

While economic conditions as reflected by consumer and corporate inflation data, the September Tankan survey, and October Sakura Report were not enough to cause the BoJ to make changes to its yield control operations, it did alter its inflation forecasts.

As we had expected, the BoJ did not make any policy changes today, but clearly the BoJ leadership and Policy Board members’ views on inflation have started to shift, and they appear to be laying the groundwork for their next policy move. The BoJ leadership is hoping for changes to pricing not limited to cost-push type inflation. In November, we expect a neutral bias for JPY rates, with a widening bias for JPY basis our Main Scenario, which we expect to shift to a neutral bias from mid-month.

-MUFG Strategy