During the night, the Bank of Japan announced its rates remain on hold. It is certain that the Bank of Japan was also closely looking towards the Fed, which had its meeting yesterday night. The US central bank has announced a reduction of its balance sheet which is providing some relief to the USDJPY. Indeed, the currency pair has surged above 112.
Markets will now start pricing the end of the quantitative easing. The big unknown is how the global bond markets will react, as higher yields would likely trigger a sell-off which can be massive as free money kept flowing into this market during the last decade.
The BoJ is going to continue its all-in monetary policy by buying assets at around Yen 80 trillion a year. This can definitely not end well. Some BoJ members believe that the inflation target of 2% is too high for the current monetary policy which is, in definite, not loose enough. For the time being, the BoJ maintains its 10-year government bond target around 0 percent.
Against the backdrop of the US balance sheet reduction, we consider that the USDJPY is set to appreciate towards 114 within the short-term.