Around the start of the year there was constant speculation that the BoJ would be soon exiting their ultra loose monetary policy. This speculation was fuelled by the move nn December 20 last year where the bank unexpectedly tweaked the yield curve control band by increasing it to +/- 0.50%.
This speculation led to a period of JPY strength as the previous weakness in the JPY was reversed at the start of the year. However, since early speculation has faded the JPY has given back all of its gains.
The BoJ still wants to see ‘sustainable’ Inflation
Inflation is lower in Japan then most of the rest of the world with headline inflation at 3.5% and the core at 3.4%. Japan is still not satisfied that inflation is definitely going to reach their target, so strangely the BoJ are still wanting to see inflation as being ‘sustainable’ before moving on rates.
What’s the best opportunity?
There is only one really clear opportunity that is likely to come from the BoJ meeting and that would be if they exit their ultra loose monetary policy. This would almost certainly see a repeat of the JPY strength that was seen on December 20. Also, it is noteworthy that the JPY see a seasonal period of strength against the USD around July 1st and August 25th. The average fall in the USDJPY pair has been 1.25% with the largest fall being 4.40% in 2011. So, seasonals could further support JPY strength if the BoJ change their policy stance on Friday and either raise interest rates or further increase their yield curve control band.