On USD/JPY, attention should switch to the BOJ meeting on Friday, where only a 10% chance of a 10bps hike in the BOJ policy rate means the market is relaxed.
The BOJ is expected to trim the monthly pace of bond buying from Y6trn to Y5trn, with the thinking being that a 10bps hike should arrive July or September. However, we see this as a close call and on balance we look for a 10bps hike. This is based on the BOJ view on domestic inflation, but could catch the FX market by surprise and produce a late squeeze on JPY shorts at the end of the week.
