This week bore witness to the biggest daily gain of the Yen against the US dollar in the 21st century.
The Bank of Japan (BoJ) has widened the Yield Curve Control’s (YCC) 10yr trading band from +/-25bp to +/-50bp while keeping its target at 0% and increasing Japanese Government Bond (JGB) purchases. This came as a shock for investors and market consensus, as many expected changes to the YCC only after BoJ Governor Kuroda leaves in April 2023.
The BoJ has largely downplayed their surprise move as a "technical" adjustment, but speculation over more BoJ policy shifts, implies potential volatility for Japanese equity and bond markets.
Bank of Singapore’s caution against using JPY as a funder is paying off, and we continue to see scope for greater downside in USDJPY to 125 by end-2023. On equities, we have advised adding Japanese financials over the course of 2022 which have delivered solid gains. We expect continued investor interest in the sector given it is positioned to benefit from potential future policy normalisation.
A small step for the BoJ, but a giant leap for the Japanese Yen!
Tune in to our latest podcast with Sim Moh Siong, Currency & Commodities strategist, and Camilia Goh, Senior Equity Research Analyst to find out more.
