Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes JPY outlook as the Yen is beginning to look at the BoJ meeting.

BoJ in focus

The Q1 real GDP gain of 2.7% saar, compares with a 25-year average growth rate of 0.7% and the 2% (YoY) deflator compares to a 25-year average of -0.4%. That last number helps explain BoJ caution, of course – they’ve been trapped in disinflation for an awfully long time. Still, there’s got to be a chance that they are contemplating a further tweak to the yield curve control policy next week. 

10yr yield differential and USD/JPY re-set itself with the first YCC change at the end of last year. By the end of January USD/JPY was 10 figures lower than the yield differential implied, but that gap has halved in recent weeks. That increases the downside potential for USD/JPY (or EUR/JPY) if we do get a BoJ move.