USD/JPY: Credibility risks lift upside scope – OCBC

💡 DMK Insight

The recent JGB curve steepening signals growing doubts about the BoJ’s policy effectiveness. As OCBC strategists point out, the market’s unease stems from fears that the Bank of Japan is lagging in its response to post-energy shock dynamics. This could lead to increased volatility in the yen and Japanese equities, especially if traders start pricing in a more aggressive tightening cycle. Watch for key levels in USD/JPY; a break above recent highs could trigger further selling pressure on the yen. Additionally, keep an eye on Japanese government bond yields, as rising rates could impact global bond markets and risk sentiment. If the BoJ fails to act decisively, we might see a broader sell-off in risk assets, particularly those correlated with Japanese economic health, like commodities and emerging markets. Here’s the thing: while the mainstream narrative focuses on the BoJ’s current stance, the real risk lies in the potential for a sudden policy shift that could catch traders off guard. Monitor the upcoming economic data releases for signs of inflationary pressure that could force the BoJ’s hand sooner than expected.