📝Market Is Pricing A YCC Tweak, USD/JPY Decline Likely Limited: UBS Strategy

At 2am Tokyo, the Nikkei electronic edition reported that the Bank of Japan would discuss yield curve control tweak to allow rates over 0.5%, and the yen appreciated. This is likely not a leak from the Nikkei, but a communication with the market by the Bank of Japan through the Nikkei newspaper. The article points to the intention of this news was to soften the reaction during Tokyo hours by putting it on the market overnight to encourage reactions overseas.

My colleague Taiji Hirota highlights points to watch out for:

(1) Friday's press conference may emphasize that the current monetary policy will remain unchanged, but that there is a change in investment methods and does not indicate a rise in interest rates. The headline may momentarily confuse the market, and prompt it to think that last night's headline was a heads up.

(2) Forward guidance is likely to be dovish.

(3) Since the market has already priced in a yield curve control tweak, USDJPY's decline is likely to be limited. Spot will most likely try and break below the last low of 137.25.

- UBS Strategy