Central to the USD/JPY dynamic is the Bank of Japan’s (BOJ) unprecedented monetary policy trajectory. After years of aggressive yield curve control (YCC) and negative interest rates, the BOJ initiated a cautious normalization path in 2024.
Subsequently, the BoJ’s March meeting minutes revealed internal discussions about sustainable inflation exceeding the 2% target ...Phase three, now underway, focuses on the BoJ’s reduced tolerance for yen weakness as an inflation driver.
For years, the BoJ has maintained an ultra-accommodative stance through its YieldCurveControl (YCC) framework and negative interest rate policy ... The prospect of a BoJ rate hike is no longer a theoretical debate but a matter of timing and scale.
The BOJ plans to sell around 330 billion yen annually of ETFs at book value to avoid impacting stock prices, a pace at which a simple calculation shows it will take 112 years to complete the sell-off.
The challenge puts the BOJ in a bind as any attempt to keep long-term interest rates low would conflict with its gradual rate-hike path, which it hopes would moderate inflationary pressures from a weak yen.
The Bank of Japan has grown more cautious about the inflation risk posed by a weak yen, a summary of opinions showed, after recent volatility put markets on alert for intervention ... .