Two big Japan events are forthcoming this week: the October Bank of Japan (BoJ) meeting and the Ministry of Finance’s (MoF) official intervention data release for October. Goldman Sachs predicts that the BoJ will maintain its policy in Tuesday's meeting, albeit with probable adjustments to their core Consumer Price Index (CPI) forecasts. Even if there's a potential adjustment to the current rate cap or an unforeseen conclusion to the Yield Curve Control (YCC), the possibility of a substantial reversal in USD/JPY remains low in their estimation.
Key Points:
USD/JPY Movement:
- Following a period of relative stability, USD/JPY has surged beyond the 150 mark. This movement comes just before two pivotal events: the BoJ’s October meeting and the MoF’s official intervention data release.
BoJ's Anticipated Policy Actions:
- Goldman Sachs' team of economists anticipates that the BoJ will remain consistent with its policy, notwithstanding potential upward modifications to their core CPI projections for FY23 and FY24.
- Nevertheless, they also identify a possibility that the current rate cap might be increased beyond 1%. This sentiment aligns with recent media coverage hinting at the discussions likely to transpire in the BoJ meeting.
Impact on USD/JPY:
- Goldman Sachs opines that even if the BoJ tweaks its policy or unexpectedly concludes the YCC, the chances of a significant reversal in USD/JPY's trajectory are minimal.
Conclusion: Goldman Sachs underscores the upcoming BoJ meeting and the MoF’s data release as two significant events poised to shape the direction of USD/JPY. Although the BoJ is anticipated to maintain its policy, potential modifications, especially to the current rate cap, are on the cards. Nonetheless, the potential influence of such adjustments on the USD/JPY remains restricted, per Goldman Sachs' assessment. Market participants will be vigilantly observing the outcomes of these events to gauge the JPY's future trajectory.
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