Low volatility to sustain gradual JPY weakness – Nomura

Nomura Global FX Strategy team believes the low volatility in the markets is likely to keep the offered tone around Yen intact.

Key quotes

The BOJ left its policy unchanged, as widely expected. The Bank downgraded its inflation forecast and it now expects to achieve 2% inflation around FY2018, delayed from FY2017.

Governor Kuroda said he does not feel a sense of discomfort with the current yield curve, and the Bank maintained its current monthly pace for JGB purchases for November. There was no step towards further tapering and market reactions to BOJ communications have been muted. Stable low JGB yields should encourage Japanese investors to purchase foreign assets beyond today’s meeting.

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