USD/JPY: “Follow the Money” suggests downside risk for USD/JPY ahead of BOJ meeting
There has been a perception in the Asian market for decades that the big Japanese corporates somehow had the inside rub on major policy shifts by the BoJ. The idea being that hedging amounts tended to increase or decrease significantly in the lead up to major meetings. Next week’s meeting is looming as a major one, with market expectations increasing that we will see a deeper dip into short-term negative rates as well as additional policies aimed at steepening the curve (increasing longer term rates).
Market information sources are certainly not as clear as they once were but from what I can gather, there have been huge offers from Japanese corporates on all rallies over recent weeks. Two weeks ago I heard reports that a big US investment bank bought billions of USD above 104 and could have had billions more, with huge corporate offers every few pips. On Wednesday of this week we had more huge tranches of USD buying go through the market between 102.85/103.30 running into more very happy sellers.
We will have to wait a few weeks for more exact positioning analysis, but I suspect that large speculative JPY longs have been exiting the market ahead of the BOJ but this JPY selling has been gratefully soaked up by un-leveraged JPY buyers.
It seems to me that the topside in USD/JPY is pretty much capped for now and we could encounter some significant downside risk before Thursday’s decision.