Macro Insights/Report: The BoJ "Surprise"

Leaked News

Hey everyone,

As markets opened today, there was some news that was “leaked” by the BoJ regarding their policy decision this week.

As soon as this news was leaked, everyone started talking about the possibility of a BoJ YCC shift:

I noted this risk in the article that was published yesterday. The BoJ action is the main event this week, NOT FOMC.

And I put on a long Yen trade last night:

As you can see Yen price action has moved up reasonably from the “leaked news.”

What is the larger significance?

When we take a step back and think about central banks’ actions across the world, the BoJ has been the last bank to shift its policy stance.

The BoJ was the first central bank to really test the bounds of QE and YCC over the past decade. But as we moved into a higher inflation regime and had a shift in leadership at the BoJ, things changed. Ueda began to slide in some hawkish comments and actions here and there.

Think about the timing of this though. The BoJ is making hawkish actions just as the rest of the central banks are pausing. The implications for the Yen and risk on/risk off flows are going to be essential to monitor moving into the end of the year and 2024.

2022 was the year when the Yen had an incredibly bear market due to YCC during a Fed hiking cycle. What do you think would happen if the opposite occurred in 2023? Something key to think about.

Final Thought:

Check out the macro report breaking down views for Q4 and 2023. There will be some key trades that I plan on running in connection with this:

Thanks for reading!