The final Bank of Japan monetary policy meeting of the year had an unexpected result. The Bank of Japan, which had stubbornly maintained its ultra-easing stance in the face of global interest rate hikes, suddenly expanded the fluctuation range of the YCC from 0.25% to 0.50%. The announcement comes as each country is about to enter the stage of exploring the level and timing of the terminal rate. The market has taken a surprise turn, and the yen has appreciated at once.
The euro-dollar, which initially reacted with dollar-selling as the dollar-yen plummeted, recovered due to downward pressure from the cross-yen. As for the Australian dollar/dollar, it has fallen sharply, doubling its gains. Major cross-yen exchange rates are falling sharply in the range of 4-5 yen.
In response to the expansion of the permissible range for the rise in long-term bond yields in Japan, bond yields in various countries, such as US bond yields, also rose. The 10-year U.S. Treasury yield briefly climbed above 3.7%. Asian time stock markets, including Japanese stocks, are plummeting.
Under these circumstances, I would first like to pay attention to market trends during the Bank of Japan Governor Kuroda’s press conference. This year’s dollar-yen exchange rate has shown a significant price movement of just under 40 yen, but the half price level is located in the upper 132 yen range. If it falls below this level, it may trigger further yen buying, so we should be careful. Also, short-term volatility is soaring, so the market is likely to swing back violently. It is a place where a calm response such as watching quietly and reducing the position is required.
UBS Securities Chief Economist Masamichi Adachi said, “Whatever the Bank of Japan calls it, this is a step toward an exit,” and pointed out that an interest rate hike in 2023 is possible. “Today’s decision is a big surprise and once again reminds us of the need to improve the BOJ’s communication with the market,” he said. From here, we will continue to buy JPY today.