A volatile week for JPY, more to come

Despite ending far from the top, the US Dollar is on its way to the biggest weekly gain in months versus the Japanese Yen. The fact that the Bank of Japan did not “pivot” from its current ultra-accommodative monetary policy weighed on the Yen. Still, market participants await a shift during the second quarter when Kuroda’s term expires in April. Japan’s latest Core CPI numbers favor that Change.

Also, sharp moves in government bond yields favored volatility in Yen’s crosses. Fears about the economic outlook boosted the demand for safety but also, central bankers continued to talk about the necessity of higher interest rates for a some time, limiting the downside in yields.

Attention will turn next week from the BoJ to the Fed. The FOMC will announce its decision on February 1. A 25 basis points rate hike is expected. However, market participants will look for clues about how far the Fed is willing to go on tightening monetary policy and how it sees the economic outlook.