The market is also wary of surprises from the BoJ, which has done nothing when markets expected it to, and vice versa. Having postponed its sales tax, Japan is seen moving towards re-launching Abenomics to revive growth and to fight deflation.
Markets also generally get anxious about intrusions when USDJPY and EURJPY drop towards 105 and 118.700 levels respectively.
Although we reckon that the BoJ would lower its negative policy interest rate a further 0.1% in Jul-Sep, the skepticism is that there is no need for further easing has decreased somewhat with the more pro-active fiscal stance of Abenomics.
As for the BoE, it will seek to reassure markets that it is prepared to deal with any capital flight, sharp GBP depreciation and credit crunch from a leave vote.
As FX markets become disorderly, past experiences such as Japan’s tsunami in 2011 would see the world’s other major central banks standing behind the BoE.
The BoJ would likely defer a rate cut in this monetary policy meeting, esteeming a coordinated event when the government releases its fiscal stimulus package in autumn, said Stephen Innes, a senior foreign-exchange trader at OANDA Asia Pacific. “This delay will likely appreciate the yen over the short term if the BoJ remains sidelined.”
Pease be noted that the negative risk reversals of EURJPY has been the second highest negative flashes among G7 currency space.
As the delta risk reversals have again shown in bearish interests as the progressive increase in negative numbers signify the traction for hedging sentiments for downside risks in both short and long term, it encompasses many risky events in both short and long run that could pose potential headwinds for sides of this pair.
For an instance, the risky event such as Brexit event in the short run could hamper euro’s prospects. Given concerns over limits of the policy arsenal at the BoJ and rising euro-centric risks, we recommend initiating short EURJPY positions for long term hedging.
The material has been provided by InstaForex Company – www.instaforex.com