Signals Point To Big Downward Move in USDJPY

Though the Bank of Japan has affirmed it will maintain ultra-loose monetary policy, our FX signals suggest that a sudden appreciation in the yen against the dollar is on the horizon.

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Predata's Bank of Japan FX Relative Event Risk signals spike to anticipate large, unexpected moves in the price of the yen.


Predata signals related to the Bank of Japan suggest that a big, unexpected gain in the yen against the dollar may be forthcoming, as market expectations about the future of BOJ quantitative easing appear to deviate from the bank's signaling. Over the past two weeks, BOJ Governor Haruhiko Kuroda and Prime Minister Shinzo Abe have repeatedly emphasized the need for Japan to maintain ultra-loose monetary policy to combat deflation. Yet, they have also affirmed that the economy is strengthening and inflation expectations are rising.

The anticipatory signals shown above recently hit their highest levels in more than a year. The magnitude and duration of the signals' rise indicates a big move in the yen is likely in the near-term. 

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Meanwhile, a separate signal designed to anticipate gains in the yen against the dollar in the next 30 days has also been climbing, suggesting the USDJPY could fall in the near-term.

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Other Predata signals support the notion that volatility in the yen is related to expectations about BOJ quantitative easing. Relative online interest in the bank's asset purchase program tripled over the past month. In the recent past, rises in this signal reflected increased scrutiny of the program — possibly indicating that market expectations for the program are hawkish, despite Kuroda and Abe's declared commitment to staying the course.

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The Abe government has said nothing about its intentions for the BOJ leadership next month when the deputy governors’ terms end on March 19 and Kuroda’s ends on March 8.