The Bank of Japan September monetary policy decision could arrive at any point in the next few hours.
According to Bilal Hafeez and Sam Bonney, currency strategists at Nomura, the USD/JPY could slide in the days ahead if recent history is anything to go by, noting that the yen has tended to strengthen in the days following a BOJ policy announcement.
“Experience since January shows that USD/JPY has typically fallen on the BOJ meeting day, though the decline has not tended to persist beyond a few days,” the pair wrote earlier this week.
The chart below from Nomura shows the performance of the USD/JPY around BOJ meetings since the bank cut interest rates into negative territory in January this year. As suggested by Nomura, it has a tendency to decline in the days following a BOJ policy decision.
Looking to today’s decision, Hafeez and Bonney think that trend is likely to continue.
“We expect the BOJ to ease further, but the key is timing,” they wrote.
“With USD/JPY away from the 100 level, stronger recent data and the lack of clarity on Fed action (the FOMC meets after the BOJ), policymakers may prefer to stand pat until the end-October or early November meeting. This supports the notion of disappointment on the day, which may cause USD/JPY to decline.”
While a non-move will likely see the yen strengthen, says Nomura, it doesn’t believe it will last beyond the short-term, suggesting that investors should consider “fading” the move with a “bigger picture in mind”.
“We continue to believe that flow dynamics point towards a weaker yen into year-end,” Hafeez and Bonney note.
The USD/JPY currently trades at 101.57, down 0.12% for the session.