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Jun 13 - 09:55 AM

MUFG: BoJ Policy Outlook & USD/JPY Ahead of June Meeting

By eFXdata  —  Jun 13 - 08:30 AM


MUFG outlines their expectations for the Bank of Japan’s (BoJ) June policy meeting and its implications for USD/JPY. Increased confidence in the "virtuous cycle" between wages and prices, coupled with anticipated changes in the BoJ’s approach to JGB purchases, suggest a shifting landscape for Japanese monetary policy and its impact on currency markets.

Key Points:

  1. BoJ's Confidence in Economic Cycle:

    • Recent BoJ speeches indicate growing confidence in a strengthening "virtuous cycle" between wages and prices, driven by changes in the labor market.
    • This suggests a more optimistic outlook on Japan’s economic recovery and inflation dynamics.
  2. Expected Changes in JGB Purchases:

    • MUFG anticipates the BoJ will announce a slowdown in the pace of JGB purchases, currently close to JPY 6 trillion, at the June meeting.
    • This move would align with the BoJ’s evolving stance on monetary policy and economic conditions.
  3. Rate Hike Expectations:

    • MUFG continues to expect a 15bp rate hike at the BoJ’s July meeting, reflecting the central bank’s confidence in economic improvements.
    • This anticipated rate hike is part of a broader shift towards normalizing monetary policy.
  4. Impact on JGB Yields and USD/JPY:

    • The JGB 10-year yield appears to be priced for an upcoming change, with expectations of narrowing the US-JP 10-year spread.
    • This narrowing spread is projected to lead to a decline in USD/JPY, as higher yields in Japan could prompt increased repatriation flows.
  5. Favorable Yen Flows:

    • The flows for the yen are turning more favorable, supported by higher yields in Japan.
    • Expectations of increased repatriation flows are likely to bolster the yen further.


MUFG expects the BoJ to announce a slowdown in JGB purchases at the June meeting, with a 15bp rate hike anticipated in July. These changes, coupled with higher JGB yields and favorable yen flows, point to a narrowing US-JP 10-year spread and an eventual decline in USD/JPY.

MUFG Research/Market Commentary


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