The Japanese Yen has had a wild start to the week after comments from Bank of Japan Governor (BoJ) Kazuo Ueda opened the door to speculation for the end of its negative interest rate policy (NIRP).
In early Asian trade on Monday morning, USD/JPY retreated from its 10-month peak of 147.87. It traded down to 146.67 before steadying back over 147. It has since dipped below 146.40. Live prices can seen on the right-hand side of this article.
Newspaper is reporting that Ueda san may tilt monetary policy if wages and prices rise, citing that there are various options.
He made it clear that any policy adjustment will be dependent on circumstance by saying, “We have a variety of options if economic and price conditions turn upward.”
However, the market might have got ahead of itself in seeking tightening from the BoJ. Ueda also remarked, “There is still some way to go before the price target can be realized. We will continue our persistent monetary easing policy.”
The BoJ has a policy rate of -0.10% and is maintaining yield curve control (YCC) by targeting a band of +/- 0.50% around zero for Japanese Government Bonds (JGBs) out to 10 years.
The bank has become flexible on YCC implementation, recently allowing the 10-year Japanese Government Bond (JGB) to yield above 0.50%. It traded at 0.70% today, its highest return in almost 10 years.
The spread between JGBs and Treasury yields might be worth paying attention to as there has traditionally been a strong correlation to USD/JPY. The next few sessions may see some volatility in this part of the market.
Governor Ueda’s comments follow some soft jawboning last week from Masato Kanda, Japan’s Vice Minister of Finance for International Affairs and BoJ board member Hajime Takata.
It might be reasonable to expect more remarks from Japanese officials if USD/JPY makes another move to the topside.
The market is generally not anticipating physical intervention until the price moves toward 152.00, if at all. The November 2022 high was 151.95.