Reply To: Dollar Yen Soars After Bank of Japan Keeps Monetary Policy Steady, No Change to JGB Yield Band


BMO Note

“Let us not forget that the strength of the yen will not only be a welcome development in Tokyo, but it also marks a potential pivot for the hedging costs for Japanese investors looking to buy Treasuries and hedge the returns back into local currency. A move that is sufficient to bring in sidelined buyers has yet to be achieved; although the momentum has clearly shifted in a direction that will ultimately be favorable for Treasuries. The Fed’s arrival at terminal will also carry with it a collective sense of near-term policy stability that should encourage investors to reenter the Treasury market – at least from the perspective that the uncertainty associated with how far Powell would need to hike will be resolved. Recall that 2022 was the year of the revision (terminal estimate and otherwise); once the FOMC reaches the endpoint, policy rate vol will decline as Powell attempts to hold the restrictive line, as it were.”