When Jawboning Works Best

Jawboning doesn't always work; but a central banker is most-likely to move the market with vague threats when momentum is on his side and the market is off-guard. That's the case today ahead of the BOJ meeting today. The yen was the top performer Monday while the pound lagged. A new NZD short has been  filled and in progress and is already in the green. Our Aussie short is more than 100 pips in profit, but will be maintained ahead of the latest twists and turns in PBOC's balancing of yields and currency value. 

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BOJ leader Kuroda is in a comfortable position ahead of today's meeting. The yen has dramatically weakened since the US election and that will pump fresh life into Abenomics and revive hopes of inflation. Signs of a better economy in Japan have also led to speculation that Kuroda could take a less dovish approach today. That thinking led to an 85-pip slip in USD/JPY on Monday.

We warn that Kuroda could use the market momentum and the less-dovish speculation in his favour. Liquidity is also lower than normal.

The combination makes this a great time to stick to ultra-dovish rhetoric and attempt to talk down the yen. What's the risk for Kuroda in that approach? If he's seen as too-dovish it would only fuel inflation and it's impossible to believe that runaway inflation is on the horizon in Japan. If anything, a commitment to loose policy despite better recent data may help to destroy the deflationary mindset.

The decision usually lands around 0300-0400 GMT. There is no set time.

Changing gears, we are saddened to once again have to underscore the message in yesterday's IMT: Geopolitical risks are high and liquidity risk is low. That makes for dangerous, headline-driven markets. The assassination of the Russian ambassador in Turkey and the truck attack highlight the risks.   

In other news on Monday, Fed Chair Yellen gave the US dollar a small lift when she underscored improvements in wages. That's a key metric for the Fed at the moment and her confidence suggests another hike in March already be in the process of being penciled in. The Fed fund futures market, however, is giving it just at 29.8% probability.