The Yen pair has been exceptionally active over the past few days. The USDJPY saw a six month high in implied volatility. There is a lot of apprehension about what might happen at the BOJ’s interest rate decision overnight. Which is funny, because the consensus among economists and analysts is that there won’t be any change in policy.
It is a fact that the BOJ is known for making market changes. Many had become complacent about monetary policy meetings in Japan, because there hadn’t been much of a change in a long time. The BOJ had effectively ended all easing. There was no more to be done.
The world is changing
But now that the situation calls for the BOJ to start tightening – or at least, stop the extraordinary easing – then there can be policy changes. This means that there is a chance for unexpected increases. This was a reminder to everyone at the BOJ’s last meeting when the band of its YCC was increased, effectively allowing for tighter monetary policy.
The BOJ stressed that it wasn’t actually a change in policy, because the midpoint of the target remained the same. The band was increased the same amount above or below zero. The pressure has been positive in Japan lately…