The BoJ has been expected to end its yield curve control for some time now as one of the only central banks to still maintain a very loose monetary policy. The SNB acted last week and surprised both Short Term Interest Rate Markets and Economists with a 50 bps rate hike. This put pressure on the BoJ to follow suit.

However, Governor Kuroda held firm by keeping interest rates unchanged at -0.10%. However, the pressure is likely to remain on the BoJ heading into the summer. The central bank added an unusual reference to foreign exchange rates to its list of risks. Will the JPY strengthen still as the pressure is likely to remain on the BoJ?

The seasonal pattern for the USDJPY would support this outlook. It is tilted to the downside with 12 falls in 15 years between June 22 and August 28. This means the JPY tends to gain around the summer months against the USD. Much of this outlook will also depend on the inflation outlook for the US falling as that is impacting the path of the US 10-year yields and the pace of US rate hikes.

Major Trade Risks: Any steep rise in US inflation can lift the US 10-year yields and that, in turn, supports the USDJPY and negates this outlook.

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