Flash: USD/JPY likely to move on Fed rather than BoJ – UBS

FXstreet.com (New York) - The Bank of Japan meets in the week ahead - though recent Japanese data has been soft - the central bank is set to keep policy unchanged thus far, notes Mansoor Mohi-uddin, head of Foreign Exchange Strategy at UBS.

Key quotes

In his latest comments Governor Kuroda said inflation will gradually accelerate and that real interest rates are falling. Furthermore, while he argued the central bank isn't targeting the currency, its easing was weakening the JPY. Thus Kuroda gave no signal that monetary policy needed to be eased further at this stage as he remained confident inflation was on track to hit the BoJ 2% target in two years' time.

“We think USDJPY will stay supported within its current 98-101 range. On Friday Japan's equity market closed up over 3% at 14,466. That will encourage more risk-seeking behavior by Japanese investors, including buying higher-yielding foreign currencies.”

“Larger moves in the USD/JPY, however, are only likely to come when the Fed signals clearly it will start tapering its asset purchases or if the BoJ decides to ease monetary policy again. The latter risk is most likely to occur at its October 30-31 meeting when the central bank publishes its semi-annual economic outlook report.”