At the last BoJ meeting on December 20, the bank unexpectedly tweaked the Yield Curve Control band to +/- 0.50% in order to increase bond purchases to JPY 9 trillion in Q1 2023. Interest rates were left unchanged at -0.10% and the 10-year JGB yield target is to remain around 0%. The BoJ played down the significance of this move, but speculation is that the BoJ is preparing to exit its ultra-loose monetary policy in April this year when Kuroda retires and a potentially more hawkish replacement steps in.

The latest BoJ news on January 06 last week reported that the BoJ sees no rush to adjust yield adjustments according to a Bloomberg source. The 10-year JGB yield has risen up to the 0.50% region after the BoJ adjusted its yield cap at the end of last year. Furthermore, any upward rise in inflation expectations is not expected to trigger immediate rate hikes, despite inflation being over the 2% target.

The BoJ is said to be focusing on the super core CPI in gauging price trends. So, bear this focus in mind when interpreting the latest CPI data. Next week short-term interest rate markets are pricing in an over 82% chance of no rate hike. The reaction in the JPY has been a strength and a reversal of some of last year’s weakness. However, much of this was on the relationship between US10Y year yields and the JPY. So, although no change is expected from the BoJ on January 18 it is worth being open to the prospect of a shift from the BoJ, and that could give the JPY some decent strength. So, look out for JPY strength to potentially be a major feature for the first half of 2023.