Despite the Bank of Japan (BoJ) revising up growth and inflation forecasts, political and fiscal risks are dominating yen dynamics and muting the usual USD/JPY response, ING’s FX analyst Chris Turner notes.
Japan politics overshadow monetary policy signals
« On another day, today’s Bank of Japan meeting might have sent USD/JPY a little lower. Growth and inflation forecasts were revised up and the BoJ seemed to be showing concerns about potential labour shortages and what it could mean for wages. »
« However, the political/fiscal story is dominating in Japan. Were PM Sanae Takaichi to prove successful in securing an LDP majority in elections on 8 February, JGB yields would rise again and the yen would be hit on fiscal concerns. »
« We’ve got a slightly bullish USD/JPY bias into that election event risk – especially should US activity data continue to perform well. »