USD/JPY: A recipe for Yen weakness is boiling – MUFG

Yen sell-off continues as BoJ leaves monetary policy unchanged. Economists at MUFG Bank analyze the JPY outlook.

BoJ stands pat as policy divergence widens

The combination of improving global investor risk sentiment, falling FX volatility and the widening monetary policy divergence between the BoJ and other major central banks is a recipe for Yen weakness. The BoJ’s latest policy update did not disrupt the Yen weakening trend. The BoJ decided to leave their loose monetary policy conditions unchanged. 

The widening yield spreads between Japan and overseas alongside lower FX and rates volatility is making Yen-funded carry trades more attractive, and contributing to the Yen becoming more deeply undervalued.