USD/JPY is at a fresh low for the day, down 127 pips to 138.95 as longs clear out ahead of the Bank of Japan decision later. Doubling the pain was an earlier rally in USD/JPY due to broad USD strength following strong GDP and initial jobless claims.
At this point, both sides of the USD/JPY trade have been burned by the BOJ and maybe that's what they want.
Last Friday, a Reuters report, citing six sources said policymakers were 'leaning' towards keeping yield curve control unchanged and that caused a spike in USD/JPY.
Now today, a Nikkei report says the BOJ "will discuss" changes including dropping the 10-year cap in favor of a pledge to combat yield spikes.
On the one-hour chart you can see both moves:
So which is the signal and which is the fake? We will find out in a few hours but note that both articles had wiggle room indicating what the real plan was, rather than just 'discussions' or 'leanings'.
What I don't believe is that these sources were made up. Both of these news sources are legit and I'm sure they came straight from the BOJ. So why are they doing this? Maybe the BOJ leak last week was the plan and they got an early look at today's Japanese CPI numbers and they're hot?
Or maybe the earlier leak is the right one and the BOJ is trying to flush out bond specs?
They've played games before and so anything is possible. I don't know why they want to burn specs so badly but this isn't an isolated event.
Ultimately, we will just have to wait and see what comes but I don't think it's really a game changer unless there are signs of a genuine inflation problem and rate hiking cycle in Japan.
