CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

Bank of Japan (BoJ) preview: On hold for vaccines

The Bank of Japan meets for the first time this year across January 20-21 and is expected to hold monetary policy unchanged as the country grapple with elevated Covid-19 cases and await vaccine distribution.

BoJ caught between a second state of emergency and vaccine wait

The consensus expectation continues to see the BoJ hold monetary policy unchanged into 2021, with policy rate expected to stay in negative territory at -0.1%. The negative interest rate policy (NIRP) will be coupled with yield curve control (YCC), whereby 10-year JGBs yield target would be maintained at around 0.00%. This had been the monetary policy regime established since September 2016 and may well remain the setting through 2021.

Enhanced measures including asset purchases and liquidity injection had meanwhile been noted into 2020 with the Covid-19 pandemic hit. These measures are expected to stay through most of 2021, although the BoJ had updated in their December 2020 meeting that the various measures may be reviewed with findings made public in their March 2021 meeting.

Given the renewed state of emergency, the Japanese economy is expected to see deterioration in economic momentum that may eventuate in only minor changes in the upcoming March review, if at all. At the same time, few are looking for further support on the BoJ’s end between now and March despite the resurgence of Covid-19 cases and the accompanying movement restriction advices. This is with the vaccine distribution wait that could begin as early as February for Japan to eventually see to recovery taking off.

One area whereby change may be keenly expected would be the Bank of Japan’s outlook report with a downward revision of growth likely with the renewed state of emergency seen into January. GDP estimate for fiscal 2020, which ends March 2021, may be revised lower from the current -5.5% year-on-year consensus. Broadly, the fact is that the Bank of Japan also has little room to manoeuvre as they wait out the Covid-19 storm and for the vaccines to arrive and clear the clouds.

USD/JPY vulnerable to bond yields movements

USD/JPY had inched up to start the year as a result of the rising US Treasury yields. 10-year US Treasuries had shot above 1.0% shortly into 2021 and oscillated 1.1% levels into mid-January. This had widened the spread with 10-year JGBs and thus having the differentials driving up the USD/JPY pair.

That said, prices had remained in the multi-month downtrend channel awaiting fresh leads. A continued rise in US yields could see the USD/JPY pair test the downtrend resistance here and a break could signal a deviation from the current trend. Such a scenario would more likely be driven by US leads including the passage of the $1.9 trillion rescue plan unveiled by President-elect Joe Biden ahead of his January 20 inauguration.

Given the ongoing pandemic and the Fed’s stance, however, the bias remains towards only a moderate climb for US yields from where it is currently situated. As such, prices may find the path of least resistance being sideways with immediate support at 102.60 and resistance around 104.40 levels.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Start trading forex today

Find opportunity on the world’s most-traded – and most-volatile – financial market

  • Trade spreads from just 0.6 points on EUR/USD
  • Analyse with clear, fast charts
  • Speculate wherever you are with our intuitive mobile apps

See an FX opportunity?

Try a risk-free trade in your demo account, and see whether you’re onto something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off

See an FX opportunity?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Get spreads from just 0.6 points on popular pairs
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See an FX opportunity?

Don’t miss your chance. Log in to take your position.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.