Overnight, the main focus was on Japan, where the BoJ surprisingly left monetary policy unchanged. The main takeaway is probably that the central bank needs not only more time to evaluate the latest policy measures impact on the economy but also that the central bank wants to become less driven by market forces.
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This is especially true as inflation expectations as for instance measured by 5y inflation swaps did rise only marginally on the back of increased easing expectations, rebounding commodity price developments and the yen's correction lower in the two weeks ahead of today's announcement. Nevertheless, downgrading growth and inflation forecasts and suggesting that downside risks to prices have been rising should still be taken as an indication of additional policy measures being considered later on.
It must be remembered too, what Abe’s economic adviser Honda said recently: “I want them to act in the first half of this year while I don’t know if they will choose April, June or hold an emergency meeting in May if market volatility gets higher”.
As such one may still want to believe that they are ready to act in between should markets get out of control. From that angle easing expectations are unlikely to fall further from these levels.
As a result to the above outlined conditions it may still be an appropriate assumption that USD/JPY is not facing more sustainable downside risks from these levels, especially as speculative positioning is rather long.
