Japan's yen, long favoured as a safe-haven and funding currency, has in recent weeks become so enmeshed in market speculation over central bank policy that Wednesday's decision to retain the status quo set off the steepest yen fall in nearly three years.
The yen dropped more than 2% after the Bank of Japan said it was sticking to its controversial yield control policy, in defiance of market expectations of a tweak to its yield cap or other settings. Those expectations had driven a 14% rally in the yen in the past three months.
Moh Siong Sim, currency strategist at Bank of Singapore, said it was a question of when, not if, the BOJ shifts its ultra-dovish stance, and the market would continue to test that by pushing the yen higher.Japan's yen and yields Some investors expect the central bank to use evidence of rising inflation and a change of the guard at the BOJ in April as an excuse to make a move. Domestic investors say the pressures of managing a highly distorted yield curve and increasing bond market dysfunction are sufficient reason for the BOJ to act.
"We were quite well-positioned for the move in December from the BOJ. We had a significant overweight on the Japanese yen, in the aftermath, we took profit on some of our yen position," Athey said. "Macro hedge funds that lost money in the final months of 2022 on their long-dollar positions are just mildly positioned for a yen rally and are worried about a sharp reversal," said Maybank's Horchani.
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