Traders bet a Ueda-led BoJ will soon abolish yield curve control – Bloomberg

Bloomberg came out with the analysis suggesting further challenges to the Bank of Japan’s (BoJ) easy money policy during the incoming Kazuo Ueda’s reign. The news initially said, “With the nomination for the top BOJ job set to be announced Tuesday, bond traders are wagering on a further tweak to yield curve control sooner rather than later and pricing in an end to negative rates around the middle of the year.”

Key findings (via Bloomberg)

Benchmark yields have been holding close to the BOJ’s 0.5% policy ceiling this month on concerns that Ueda will have to either tweak or completely abandon the curve-control program amid rising inflation.

Forward-dated swaps are pricing in a removal of the BoJ’s negative-rate policy in July followed by a series of hikes in short-term interest rates.

The yen has jumped more than 12% since the end of October, outperforming all of its Group-of-10 peers, thanks to a boost from the BOJ unexpectedly doubling its 10-year yield cap in December.

Three-month implied volatility for the Japanese currency has been elevated since October even as an equivalent gauge for the broader market declined, indicating that traders are on guard for another BOJ surprise.

Bets on an expected demise of yield-curve control and policy tightening overseas have necessitated an increase in central bank intervention to defend its yield cap.

The fragile state of the bond market provides further evidence that Kuroda’s unprecedented quantitative easing may have only a limited time left.

USD/JPY grinds higher

It should be noted that the Japanese government is up for formally announcing their nominations for the BoJ leadership on Tuesday, making Bloomberg’s piece important for the USD/JPY pair traders. Also highlighting the Yen pair is the presence of the first reading of Japan’s fourth quarter (Q4) Eurozone Gross Domestic Product (GDP).

That said, the USD/JPY pair remains mildly bid near 132.40 amid the market’s cautious optimism during early Tuesday morning in Asia.

Also read: USD/JPY Price Analysis: Rejected at 133.00 but remains firm at around 132.40s