- Japan 10-year bond yields rose 1.5bps to 0.852%
- Odds of a yield curve control adjustment are growing for next week’s BOJ meeting
- Dollar-yen vulnerable to a surge above 150 on a robust US Q3 GDP print
The pressure is building on the Bank of Japan. As the global bond market selloff resumes, Japan’s ultra-easy monetary policy stance has allowed excessive yen weakness. Expectations for the October 31st BOJ meeting are for no changes with both YCC and negative rates. The majority of analysts expect no changes in monetary policy, but just under 10% could see a tightening step, and 16% could see a tweak to policy.
FX traders seem to be positioning for a robust US Q3 GDP report given all the recent robust labor and spending figures. The advance reading of Q3 GDP could come in as low 2.8% or as high as 6.0% according to economists surveyed by Bloomberg (4.5% consensus estimate). FX watchers can’t also forget Friday’s inflation data, which could be another log on what might end up being a bond market selloff.
FX volatility is expected to be elevated given how the dollar-yen is once again trading right around the 150 level and over how it reacted after the hot JOLTS report on October 3rd.
Fireworks are expected given the pressure that is mounting on central banks. The bond market might force the BOJ to act sooner and sticky inflation could make the Fed have to deliver more rate hikes. The tight range that the dollar-yen has been trading won’t last forever and everyone will want to know if the first move will be a resumption of the longer-term bullish trend or the beginning of a major reversal.