BOJ Review: Muted reaction points to a higher possibility of further JPY weakness – Nomura

Research Analysts at Nomura came out with a note on the review of the BOJ’s latest monetary policy decision, stating that BOJ’s inaction had muted reaction on the fx market.

Key Quotes:

“We judge the muted reaction to the BOJ not easing today will be gradually negative for JPY in the mid term”

“Japanese financial market volatility has been declining since the introduction of yield curve controls and the low volatility environment will likely continue beyond today’s meeting, especially as the BOJ has kept its JGB purchases unchanged into November.”

“Concerns over tapering should not increase market volatility anytime soon, which will encourage Japanese investors to keep investing in foreign assets.”

“Our estimate suggests super long-term yields are less important for USD/JPY movements than short term yields, but for the BOJ it is important to keep volatility low to maintain JPY weakness.”

“In the near term, the outcome of the US presidential election will be the key driver for USD/JPY, but today’s muted reaction points to a higher possibility of further JPY weakness, in our view.”