‘What if the Bank of Japan blinks?’
Until last week, trade in the yen reflected an expectation that while the US Federal Reserve may be forced into further monetary policy tightening by high inflation, the January policy meeting of the Bank of Japan was unlikely to rock the boat with any significant verbal or practical change in stance. This helped push the Japanese currency to its weakest point against the dollar in five years.
However, recent days have dented that certainty. Analysts at JPMorgan framed a Friday note on the yen with the question “what if the BoJ blinks?”: trading in the yen, which rose strongly on Thursday and Friday, is an expression of the same speculation that this week’s meeting may yet hint at a critical shift in thinking, or a potential loosening of the BoJ’s yield curve control regime.
Underlying inflation in Japan is creeping higher, with a significant December jump in wholesale prices the latest signal that even Japan is not immune to the global trend.