BOJ Disappointment Leaves Yen Vulnerable to Sharp Moves

The Japanese yen has been left vulnerable to sharp price swings and further declines in the coming week due to reduced trading liquidity during Japan's three-day holiday. This reduction in liquidity comes on top of investor disappointment that the Bank of Japan (BOJ) did not offer stronger guidance on future interest rate hikes.

Following a BOJ meeting last Friday, where two board members dissented from a rate hike, the yen initially fell as much as 1.3% before steadying around 156.86 per dollar on Monday. The currency had previously declined more than 2% in the past week, its largest weekly fall in almost a year.

Senior markets economist James Reilly noted that 'like most other times the yen has gone into a BOJ meeting on the front foot lately, the BOJ has stopped it dead in its tracks.' This suggests that any material upturn for the yen will depend on the US side, according to Reilly.

Additionally, a reported rate check by officials highlights the risk of authorities intervening in the market to arrest further weakness in the yen. This would likely bring rapid price swings that can burn traders.