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Yen traders gather ‘round!

On Thursday during the Asian session, the Bank of Japan (BOJ) will release its first monetary policy decisions this year.

What are markets expecting from the event and how can it affect your yen trades?

Here are points you need to know:

What happened last time?

As expected, the BOJ kept its policies unchanged in December and extended its COVID-19 funding programme by a few months.

What traders didn’t see was Governor Kuroda and his crew conducting an assessment “for further effective and sustainable monetary easing.

Overlay of 15-min JPY charts
Overlay of 15-min JPY charts

Vaccine optimism was already dragging the yen lower at the time, but it hit new intraday lows when Kuroda talked more about possibly finding new measures to stimulate the economy.

The bad vibes didn’t last long, though, with the safe-haven gaining ground when traders worried about not getting a Brexit deal in the U.K. and a stimulus deal in the U.S. in the later trading sessions.

What’s expected this time?

Central bank geeks don’t expect the BOJ to make changes to its interest rates and yield curve control policies this week.

We probably won’t see fresh stimulus either, at least until their “assessment” is finished in March.

Some see the central bank scaling down its ETF purchases, though.

For one thing, the BOJ is already getting flak for holding so many relatively risky assets that it’s distorting market prices. In addition to that, central bank help is less urgent in Japan’s equities markets because “stocks only go up” these days.

What other factors should I watch out for?

The BOJ will publish a quarterly outlook report and Kuroda will conduct a presser after the statement is published so we’ll probably know more about the prospects of additional easing in March.

But unless we see a dramatic scaling down of ETF purchases or some surprise policy change, then it’s unlikely that the event will dictate JPY’s intraday trends for long.

For one thing, the BOJ will publish its decision only a few hours after Biden is inaugurated. Traders will probably pay more attention to what #46 will do on his first day.

And then there’s overall risk sentiment, which could dictate the yen’s prices more than BOJ’s event will. Keep an eye out for themes such as lockdown prospects, stimulus rumors, and geopolitical tensions.