BoJ On Hold This Week But Risk-Reward Attractive For EUR/JPY Longs - BNPP

Anticipation is building ahead of Thursday’s BOJ meeting result, with the JPY weakening sharply this past week in anticipation. A number of wire and newspaper reports in recent days have suggested new measures are under consideration, including possibly further cuts in the BOJ’s IOER rate and potentially moving to a negative rate on BOJ bank lending facilities.

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Our economists’ base case remains that the BOJ leaves policy unchanged this week, suggesting the JPY could recover some lost ground (especially if the Fed also stays neutral as detailed above).

However, the BOJ call is a close one and risks of action this week have risen given JPY gains since the last meeting and slower growth numbers. With the JPY having outperformed other funding currencies this year and the market short JPY we think risk reward is attractive for EURJPY longs.