Higher long-term yields in Japan should be JPY-supportive – Scotiabank

The Yen is choppy but holds gains after BoJ allows the 10Y yield to rise as high as 1%. Economists at Scotiabank analyze JPY outlook.

BoJ makes changes to its YCC policy

The BoJ maintained its target for 10Y yields at 0% but henceforth, it will consider 0.5% as a reference point and tolerate yields up to 1%. 

The BoJ’s key policy rate remains at -0.1% and Governor Ueda said the BoJ was a long way from being able to tighten policy. 

Higher long-term yields in Japan should be JPY-supportive as US/Japan spreads have some opportunity to compress a little more moving forward. 

The JPY has been the laggard in the broader G10 FX move against the USD this year so even moderate JPY strength will add to broader DXY headwinds.