Skip to content

CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Bank of Japan (BoJ) preview: views on recent yen weakness in focus

The Bank of Japan is set to hold their monetary meeting across 27 – 28 April 2022, with the meeting bringing updated forecasts on growth outlook and inflation.

Bank of Japan Source: Bloomberg

Policy tools to see no change for now, but central bank’s views on yen weakness will be in focus

The recent eye-catching moves in the forex market will evidently be the sharp decline in the Japanese yen, as the Bank of Japan (BoJ) continues to defend the cap on its 10-year bond yields through the unlimited buying of Japanese government bonds. This marks an ongoing commitment to its accommodative monetary policy stance while its global peers move in the opposite direction with rate increases, fuelling the yen weakness on policy divergence.

While the upcoming meeting is largely expected to see the BoJ keeping its current policy stance unchanged, the sell-off in Japanese yen is translating into greater pressure for the central bank to respond. A weaker yen serves as a double-edged sword for Japan’s economy. On one hand, it makes Japan’s exports more competitive but on the other hand, soaring energy and commodities prices will be more hurting to its businesses and consumers. Keeping its current policy settings unchanged for now will include maintaining its target of -0.1% for short-term rates and 0% for the 10-year bond yield, under its policy of negative interest rate policy (NIRP) and yield curve control (YCC).

The views of BoJ governor Haruhiko Kuroda on the currency will be in focus. He has previously stuck to his view that a weaker yen is beneficial to Japan's economy but recent plunge in yen to a two-decade low has seen him averting talks on the currency. He will likely continue to defend the easing stance in monetary stimulus on the basis of a more subdued inflation dynamics and the unsustainable nature of current cost-push inflation. That said, he will find himself walking on a thin line in providing his communication between sticking to the easy policies and the implications of a weaker yen on the economy.

Japan's core and headline CPI % YoY Source: Statistics Bureau of Japan
Japan's core and headline CPI % YoY Source: Statistics Bureau of Japan

Outlook report to provide fresh round of updates on growth and inflation

With the upcoming release of its outlook report, the meeting will bring about a fresh round of updates on growth and inflation outlook. With the added economic uncertainty of the Ukraine-Russia war from its previous forecasts in January, the BoJ will likely have to revise its core consumer price index (CPI) forecast higher for this year, while growth projections will likely see a downward revision from its previous forecast of 2.8%. The International Monetary Fund (IMF) has recently slashed the country's economic growth forecast for 2022 to 2.4%, from its earlier estimate of 3.3%.

For now, the central bank may continue to argue that the current inflation reading at 1.2% is still below its desired target of 2%. It can probably get away with some benefit of the doubt but may face an increasingly difficult task to convince the markets ahead if inflation prints continue to turn in higher. To recall, the Federal Reserve (Fed) has also sticked to its stance of inflation being ‘transitory’ until it was eventually forced to drop that term and adopt a more hawkish stance in its policies.

Any hints of adjustment to yield curve control on watch, though unlikely

Any hints of an adjustment to its yield curve control, although unlikely, will be on watch as well. The IMF has previously suggested that the BoJ consider targeting the five-year yield under its YCC to ease the strains caused by its ultra-loose policy on financial institutions. Any indications of such shift, which will clearly be deemed as a surprise, may prompt a knee-jerk reaction in the yen to the upside. Much will depend on how the BoJ will respond to recent market talks of yen weakness and whether such a shift is preferred over the longer-term.

Japan 225 continues to carry a downward bias

The Japan 225 index continues to trade in a downward trend, with a series of lower highs and lower lows since September last year. A recent attempt to break above the 27,000 level failed to sustain, as risk sentiments remain fragile with market participants grappling with steeper Fed’s rate hikes ahead, along with China’s Covid-19 risks. The 27,000 level will continue to be on watch as key resistance, where a 38.2% Fibonacci retracement level lies. Further downside may drive a retest of the 26,000 level next.

Japan 225 Source: IG charts
Japan 225 Source: IG charts

USD/JPY nearing the closely-watched 130.00 level

Widening bond yield differentials from policy divergence have been the key factor driving USD/JPY to its highest level since 2002. A look at the Fed funds futures suggests market pricing for back-to-back 50-basis point (bp) hike in the next three Federal Open Market Committee (FOMC) meetings, which marks a sharp lean towards the hawkish end from just a month ago. For now, the US 10-year Treasury yield continues to trade with an upward bias with the higher highs and higher lows since August 2020, with any increase likely to provide further tailwind for the currency pair.

With the Japanese yen’s weakness, market participants will continue to grapple with the potential level for authorities’ intervention, with the 130.00 level closely watched by market participants ahead. In the event where that level is breached, longer-term technicals may suggest the 134.00 level to be on watch next.

USD/JPY Source: TradingView
USD/JPY Source: TradingView
USD/JPY Source: IG charts
USD/JPY Source: IG charts

Take your position on over 13,000 local and international shares via CFDs or share trading – and trade it all seamlessly from the one account. Learn more about share CFDs or shares trading with us, or open an account to get started today.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

Act on stock opportunities today

Go long or short on thousands of international stocks with CFDs.

  • Get full exposure for a comparatively small deposit
  • Trade on spreads from just 0.1%
  • Get greater order book visibility with direct market access

See opportunity on a stock?

Try a risk-free trade in your demo account, and see whether you’re on to something.

  • Log in to your demo
  • Try a risk-free trade
  • See whether your hunch pays off

See opportunity on a stock?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Trade a huge range of popular stocks
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See opportunity on a stock?

Don’t miss your chance. Log in to take advantage while conditions prevail.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Friday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.