Yen. Image Source: Pixabay

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 on December 20 last year where the bank unexpectedly tweaked the yield curve control band by increasing it to +/- 0.50%.

(Click on image to enlarge)

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.

(Click on image to enlarge)

The BOJ still wants to see ‘sustainable’ Inflation

Inflation is lower in Japan than 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's strength if the BOJ change their policy stance on Friday and either raise interest rates or further increase their yield curve control band.

(Click on image to enlarge)

More By This Author:

Candlestick Chart Patterns: The Piercing Pattern
The U.S. Debt Ceiling Is Suspended, But Long Term Challenges Persist
RBA Surprises With 25 Bps Hike With Potentially More To Come