Morning Brief – Japanese yen strength on the rise

The USDJPY pair fell to its weakest level in seven months this morning as traders continue to price in action from the Japanese central bank due to more policy news today.

In central bank news was that the Bank of Japan intervened in the Japanese Government Bond market yet again with another unscheduled purchase operation.

The Bank’s hand was forced as the yields on JGB continuing to rise. The 10-year JGB hit 0.535% earlier today, well above the BOJ’s 0.5% permitted ceiling.

In terms of price move the USDJPY pair crashed below the 129.00 handle, moving towards the 128.00 level. Traders are clearly not waiting for next week’s decision.

The intensifying speculation of the BOJ potentially taking action or at least signalling some intent for that next week is what is helping to drive the move in the past two days in my view.

In other words, traders are anxious in case the BOJ delivers another surprise in back-to-back policy meetings. The Bank of Japan meet on the 17th and 18th of January.

Yomiuri in Japan says the Bank of Japan will review the side effects of its monetary easing at its policy meetings next week. Japan’s Economy Minister with the announcement that they note eight economists to join upcoming special sessions of Japan’s Council on Economic and Fiscal Policy to discuss longer-term macroeconomic policies.

The Council on Economic and Fiscal Policy operates under Japan’s Cabinet Office said that “It seeks the opinions of private sector experts in policy formation with regard to economic and fiscal policy.”

Also, this morning, the Bank of Korea hiked its key rate by 25bps today. This brings the total of hikes from the South Korean central bank to 300bp during this cycle. There have been 10 rate hikes since beginning in August of 2021.

Asia stocks also moved higher after China said it will loosen restrictions on Chinese developers’ financing with changes to the “Collective management system for real estate loans” on banks and also on the “Three Red Lines” policy.

These changes had been flagged and reported on earlier which meant rises on China’s Shanghai Composite of +0.5% and Hong Kong’s Hang Seng is +0.15%.