USD/JPY Fundamental Daily Forecast – Yen Spikes Higher as Bank of Japan Trims Bond Purchases

The Dollar/Yen is trading sharply lower on Tuesday in reaction to the news that the Bank of Japan narrowly reduced its bond purchases.

At 1213 GMT, the USD/JPY is trading 112.640, down 0.443 or -0.39%.

According to Reuters, “The Bank of Japan (BoJ) on Tuesday reduced the amount of its buying in Japanese government bonds (JGBs) with 10 to 25 years left to maturity and those with 25 to 40 years to maturity by 10 billion Yen from its previous operations.” This was in reference to asset purchases made by the BoJ as part of its quantitative and qualitative easing (QQE) program.

“The BoJ offered to buy 190 billion Yen of 10-25 year JGBs, compared to 200 billion Yen previously, and 80 billion Yen of 25-40 year JGBs, compared to 90 billion Yen in the past.”

The announcement pressured the JGBs, helping to lift yields, and making the Japanese Yen a more desirable currency.

The size of the move also suggests that this is a small step by the Bank of Japan towards reversing its ultra-easy monetary policy, mirroring the actions from other major central banks in recent months.

As part of its QQE program, the BoJ pledged to buy JGBs at an annual pace of around 80 trillion Yen per annum in order to anchor benchmark 10-year government bond yields at around 0%.

Without any major U.S. economic news today, the USD/JPY is likely to remain under pressure throughout the session. It may take a few days for the Forex pair to reach a bottom. However, this is not likely to occur unless U.S. Treasury yields rise sharply. The only way I can see U.S. yields spiking higher is if U.S. consumer inflation on Friday comes in well above expectations.