What's coming for USD/JPY
Bank of America Global Research discusses its expectations for USD/JPY price action around this week's BoJ policy meeting.
"The FX market's attention to the BoJ's next MPM remains minimal with the BoJ expected to stand pat. Both USD/JPY and cross-yen vols have fallen to post-COVID-19 lows as the market has digested the initial shock of the outbreak and subsequent policy response," BofA notes.
"Looking beyond summer, we think the fall could raise USD/JPY volatility for several reasons:
- Risk of snap election as early as in October and/or leadership change in Japan
- Focus on the Fed's policy, in particular implementation or the lack thereof of YCT and its details.
- US presidential election.
- How fiscal and monetary easing in the spring is feeding into the real economy.
- With a recovery in Japan's basic balance of payments and proactive trading in US equities by Japanese investors, USD/JPY may be more sensitive to the US's idiosyncratic risk.
Lastly, near-term focus is on the COVID-19 outbreak in the US, and the recent pickup in infection cases in Tokyo," BofA adds.
