Bank of America Global Research discusses its expectations for tomorrow's BoJ policy meeting.
"While we expect the BoJ to stay on hold without a major shift on its policy stance, we do not believe the yen will weaken substantially. On the one hand, the market's primary focus remains on how the pace of the Fed's rate hikes would slow and when the Fed stops hiking. As the market's expectation for decent rate cuts by the Fed in 2024 has not shifted after the December FOMC meeting, which was not particularly dovish, USD would have difficulty rising at least in the near term. On the other hand, BoJ Governor Kuroda's term will end in April 2023. The market's focus on the BoJ is shifting from the current dovish stance to the upcoming nomination of the new governor and how it would change the BoJ's policy stance," BofA notes.
"While our base case remains the BoJ will not pivot in 2023 under the new governor, we think the market would continue to speculate until after the first MPM under the new governor in April. We eventually think the yen's fundamental weakness will manifest itself in 2023 from a perspective of carry trade, it would likely take some time," BofA adds.