After taking a break on Wednesday for the Emperor’s birthday, the yen could be in for some substantial volatility for the rest of the week. On Tuesday, the BOJ was forced to step in to defend the bounds of its YCC, buying up ¥400B in bonds. The markets are anxious to find out when and how Japan will stop its ultra-easing policies.
Answers to those questions could come on Friday as the nominee for the top job at the BOJ is expected to deliver testimony at the upper house of Japan’s parliament. Kazuo Umeda, a relatively unknown academic who has made very few statements on monetary policies over the past ten year, is not something that should be taken lightly. It is difficult to assess his outlook. There are however some factors that may help to give an insight into the future behavior of the yen pairs.
First, the data
Rising inflation is the main problem facing the BOJ. It already doubled the bank’s target in December. CPI growth is forecast to accelerate to 4.2% in January Despite an earlier adjustment by the BOJ to its policy, the rate is now at 4.0%
Japan has maintained low interest rates for many decades, even though the BOJ has fought deflation for many years. Nearly the entire tenure of Kuroda as the BOJ’s head has been about…