Yen Has Tended To Strengthen In The Lead Up To Prior BoJ Meeting Outcomes

The main event risk this week from a domestic standpoint will be Friday's BoJ meeting outcome. Looking back over the past 5 BoJ meetings, the general tendency has been for USD/JPY to trend lower into the meeting outcomes. This may reflect market hedging around a possible BoJ surprise, particularly after the Dec 22 meeting outcome. Still, expectations heading into this meeting remain quite low in terms major policy shifts.

• The chart below plots USD/JPY performance in the 10 day prior to the meeting outcome, with USD/JPY levels indexed to 100 for the day prior to the meeting outcome.
• Two weeks prior to the meeting USD/JPY has been an average around 1% higher, 1 week prior, around 0.5% higher. Of course, outside factors can be also driving yen during this periods, not just market expectations/risks around the BoJ outlook.
• Last week's performance for yen, where we down slightly against the USD, which underperformed the historical norms modestly, at least going back over the past 5 meetings.
• Post the BoJ meeting outcome, we typically see USD/JPY move lower in the week after the announcement, although these results are skewed by the post Dec-2022 outcome (YCC change) and in March of this year, which was influenced by broader risk aversion post the SVB collapse.
• If we look at 1 month implied vols, they have trended higher in the lead up to the past two BoJ meetings (Jan & Mar), by around 1vol. We didn't see a discernible trend prior to meeting outcomes last year.
• For risk reversals, the skew has been to the downside, particularly in the lead up to recent policy meetings.

Fig 1: USD/JPY Performance Around The Past 5 BoJ Meetings

Source: MNI - Market News/Bloomberg