The Bank of Japan kept interest rates unchanged at 0.1% today, leading to another wave of weakness in the Japanese yen, resulting in the USDJPY pair hitting the 157.40 level, the new highest point in 34 years.
While investors did not expect the BoJ to change its policy this week, Ueda was expected to adopt a hawkish tone regarding future rate hikes to slow the yen's decline. Instead, Ueda said at a Friday press conference that members of the central bank's board of governors assessed that for now there is "no major impact" of a weaker yen on core inflation. The BoJ expects accommodative monetary conditions to continue, despite the resilience of private consumption and elevated inflation forecasts.
Chart of the USDJPY pair on a monthly interval. Source: xStation
Data from the options market invariably indicates that investors are hedging against a sharp pullback in the yen market. So far, however, this scenario is not materializing. Above, Risk Reversal strategy indications for 2 weeks.
Source: Bloomberg Financial LP
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