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Jan 02 - 02:55 PM

MUFG: BoJ's Expected Policy Shift in January and USD/JPY Outlook

By eFXdata  —  Jan 02 - 12:00 PM


MUFG forecasts significant policy changes from the Bank of Japan (BoJ) in their upcoming January meeting, which could trigger notable shifts in the USD/JPY currency pair.

Key Insights:

  1. End of YCC and NIRP:

    • MUFG anticipates that the BoJ will conclude its Yield Curve Control (YCC) and Negative Interest Rate Policy (NIRP) in the January meeting. This expectation is already partially priced into the market.
  2. JPY's Potential for Outperformance:

    • Given the current global inflation dynamics, MUFG sees the Japanese Yen (JPY) as having the highest potential for outperformance among G10 currencies in 2024.
  3. Scope for USD/JPY Reversal:

    • MUFG notes the significant rise of USD/JPY from 115.00 to 150.00. A partial reversal of this trend could lead to a strong performance of the Yen, especially considering the current high levels of short JPY positioning.
  4. Risk of Abrupt JPY Movement:

    • There is a risk of a sudden and potentially larger strengthening of the Yen than currently forecasted, especially as market expectations adjust to the possibility of a trend change.
  5. Carry Trade Dynamics:

    • The attractive carry trade associated with the Yen is noted, which has contributed to substantial short positions in JPY. However, a shift in trend expectations could lead to rapid unwinding of these positions.


MUFG's analysis points to a pivotal moment in January for the BoJ, potentially ending YCC and NIRP, which could significantly influence the JPY's performance. Given the large movements in USD/JPY and the potential for a trend reversal, the market could see notable adjustments, particularly if the BoJ's tone suggests further tightening in 2024. This scenario underscores the importance of central bank policy decisions in shaping currency market dynamics and the potential for abrupt shifts in currency trends.

MUFG Research/Market Commentary


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