Credit Agricole CIB FX Strategy Research expects no changes to the BoJ’s policy parameters at this week’s meeting and looks for the IOER rate to be left at -0.1% and the YCC 10Y JGB target at 0%.
“While the BoJ will slightly revise up its GDP forecasts by 10-20bp in its Economic Outlook Report, it will lower its inflation forecasts from 1.4% to approximately 1% for FY17 and from 1.7% to 1.5% for FY18, in order to reflect recent weak inflation readings. This lowering of inflation forecasts is expected by the market…
"So the JPY will remain a function of the rhetoric of other central banks, as well as in relation to positioning and risk sentiment. Less hawkish rhetoric from the ECB could lead to some JPY strength vs the EUR in the especially given elevated long EUR/JPY positioning,” CACIB argues.
Strategy-wise, CACIB recommends buying EUR/JPY dips via options given that the pair could be subject to rising whipsaw risk into this week’s ECB and BoJ meeting.
Source: Credit Agricole CIB Research
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