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Flash: BoJ fallout, six weeks in the making – UBS

FXstreet.com (Barcelona) - It is now six weeks since BoJ Governor Kuroda announced a new program of monetary easing, and still the JGB market remains unsettled.

According to Gareth Berry, a Research Analyst at UBS, “One benign interpretation of the turbulence is that liquidity has dried up and so JGB price action should be disregarded given the allegedly small volumes involved – however, that interpretation has just been laid to rest.”

The Japan Securities Dealers Association reported this week that JGB turnover in April hit an 11-month high. As an engineer might put it, this price action is signal not noise. Many FX participants observe these JGB gyrations with a sense of detached bewilderment - a reasonable stance given the USD/JPY spot has so far shown little interest in the JGB market and continues to march higher regardless. However, “we think a more active approach to JGB surveillance by FX investors is now warranted.” Berry adds.

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