Central Bank Decisions: Fed, ECB, and BoJ - Market Expectations and Currency Volatility

 Bank of Japan decision – 28/07

the US dollar has traded in a fairly wide range against the Japanese yen in recent days, with whispers abounding that the Bank of Japan could be about to tweak its yield curve control policy, with a view to targeting shorter term rates.

The BoJ has been the major outlier this year in terms of tightening policy, making the yen the worst performer year to date for the first half of this year. This appears to have gone into reverse this month on the basis that the market is convinced a policy change is coming, whether it be now or in October.

Recent whispers suggest a move may now be deferred until October, however as with anything with Japan the currency may also have a part to play if we head back towards 150.00.

Of course, it's also important to remember there is a US dollar element here, and the fact that the market thinks the Fed is done after this week's July rate rise is another factor behind the recent volatility in the Japanese currency.

Whatever happens this week with the BoJ, with Japanese core CPI already above 4% and at a 40-year high a policy tweak is coming, and that could see further yen gains in the coming months.