The Japanese yen was the best-performing major currency in trading earlier this year. USD/JPY subsided about 3 percent in the past two days to touch an eight-month low of 128.00.
It could be seen at the start of Friday's (13/January) New York session. GBP/JPY and EUR/JPY are also mired in the lowest range in the past five months.
This is inseparable from the increasing market speculation around the prospect of a change in the policy of the Central Bank of Japan (BoJ). The yen's buying action began to spread yesterday.
That was occurred after Yomiuri reported that next week's BoJ meeting will review the side effects of its loose monetary policy. The same report reveals one more surprising point.
May BOJ Change It’s Policy?
The point above was that the BoJ is likely taking steps to "correct" distortions in the Japanese government bond (JGB) yield curve arising as a result of yield curve control (YCC) policies.
Various speculations have emerged about how the BoJ will "correct" the distortion of the yield curve. A Bloomberg survey of 43 economists showed 42 respondents believe the BoJ will not change policy at next week's meeting.
Meanwhile, 38% of respondents expected a policy change in April or June right after the BoJ Governor's change. Besides that, the majority predicted normalization of BoJ policy from July.
BOJ May End the YCC Policy Next week
Elsewhere, Citigroup predicts That Bank of Japan will end its YCC policy next week. The hawkish direction of speculation has prompted Hedge Funds to rally short-selling on Japanese government bonds.
It was resulting in yields skyrocketing to 0.54% (breaking the BoJ's target yield threshold). The institution then responded immediately this morning by launching another JGB buying action.
However, market speculation continued. An analyst thinks that BOJ may actually be trying to end control of the yield curv Securities just like what was written by Naomi Muguruma.
Naomi is a Chief Fixed Income Strategist at Mitsubishi UFJ Morgan Stanley, in a recent note. She said that Once it is clear that the yield curve is out of control, there will be no choice left for the BOJ policy board other than to end the YCC.
Consumer Prices in Japan is Now Reaching the Fastest Pace
Japan's inflation data also supported market expectations. Consumer prices in Japan are now rising at the fastest pace in four decades.
Although BoJ Governor Haruhiko Kuroda thinks the inflation rate will gradually subside, the market thinks a higher inflation rate should be followed by the raising interest rate in the future.
Elsewhere, Spot gold prices jumped by 0.7% to $1889.44 an ounce. Meanwhile, the gold futures jumped 0.6% to $1890.60 in thursday trading session tonight.
The XAU/USD chart also displays a 1.05% rise to $1895, the highest since May 2022. The significant rise in gold prices was triggered by the release of US inflation data tonight.
US CPI was Lower than the Previous Edition
The US annual Consumer Inflation (CPI) in December grew only 6.5 Percent which was in line with expectations. The level is lower than before at 7.1%.
The slowing pace of rising inflation paved the way for gold prices to continue their rally ahead of the United States Dollar. In addition, the exact number that is expected makes the market not surprised.
It means that investors can carry out the strategies they have compiled. Based on the situation, there are no major surprises or numbers that are above market expectations in today's inflation report.
It is only natural that the market response is not stronger either, rather it is just an adjustment to the investor's position when the data has not been released. That was commented by Bart Melek, strategist at TD Securities.
