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Oct 31 - 12:55 PM

Credit Agricole: BoJ's Cautious YCC Tweak Leaves JPY Vulnerable

By eFXdata  —  Oct 31 - 11:19 AM


The Bank of Japan's (BoJ) recent Yield Curve Control (YCC) adjustments have failed to impress the forex market, resulting in the swift depreciation of the JPY. With market expectations set by a prior Nikkei article, the BoJ's softer approach indicates their attempt at striking a balance. Yet, the unchanged forward guidance and the slight nudge in inflation forecasts suggest that the central bank remains wary of any drastic shifts in the current monetary landscape.

Key Takeaways:

  1. Market's Muted Response: BoJ's YCC changes led to an immediate dip in JPY value, fueled by a Nikkei article that raised expectations for a stricter policy adjustment.

  2. Sustainability Over Change: The central bank's focus seems to be on ensuring the longevity of its YCC by reducing the necessary JGB purchases.

  3. Steady Forward Guidance: BoJ's commitment to possible further easing measures remains unchanged, reflecting a cautious stance.

  4. Modest Inflation Forecast Revisions: Inflation predictions have been slightly adjusted upwards, yet the BoJ holds firm that this surge will be short-lived.

  5. NIRP to Stay: The bank's revised inflation figures don't signal an urgency to wrap up the Negative Interest Rate Policy.

  6. USD/JPY's Future Dynamics: A weakened JPY against the USD is more likely to emerge from a softer USD rather than BoJ's policy shifts.


The BoJ's measured moves around its YCC and other monetary policies underline its cautious approach. The JPY's immediate response showcases the market's disappointment, hinting that significant currency pair movements will probably hinge on the USD's trajectory rather than the BoJ's strategic shifts.

Crédit Agricole Research/Market Commentary


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