People are unwinding short yen positions ahead of the BOJ meeting. Some market participants are speculating on what kind of the language and economic assessment would come out of the meeting.
The unexpectedly strong increase of the ISM service sector index, hawkish comments from Poole and expectations of strong employment data this Friday led to renewed rate rise expectations.
Today's decision means the end of zero interest rate policy is coming closer. Less liquidity is available for yen carry trades and that should be positive for the yen.
There was an upgrade in the economic assessment by the BOJ and comments from governor Fukui. From that point of view an end to the zero interest rate policy is coming closer.
The Fed is close to the end of its rate hike cycle while the ECB is just beginning, which removes support for the dollar.
A coalition of this kind would hurt the reform process considerably, and that's worrying the market. I'd expect to see further euro weakness ahead of the election.
We don't expect another rate cut ..., but there is still the risk that rates might be cut again at some point if the economy should slow further.
