The YCC policy can have several affects on the JPY exchange rate. Here are 10 possible ways
The BOJ's YCC policy can influence long-term interest rates, which in turn can affect the attractiveness of JPY-denominated assets to foreign investors. If the policy is adjusted to target 5-year JGB yields, this could lead to changes in the yield curve and impact foreign investors' decisions to hold JPY assets.
If the BOJ raises the 5-year yield target, it could result in higher yields on JPY-denominated bonds, making them more attractive to foreign investors, which could strengthen the JPY.
Conversely, if the BOJ lowers the 5-year yield target, this could result in lower yields on JPY-denominated bonds, making them less attractive to foreign investors, which could weaken the JPY.
The BOJ's policy could affect market expectations for future monetary policy decisions, which can impact the JPY. If the BOJ signals a shift towards a tighter monetary policy stance, this could boost the JPY.
On the other hand, if the BOJ signals a continuation of accommodative monetary policy, this could weaken the JPY.
The BOJ's policy could impact the inflation outlook, which can also influence the JPY. If the BOJ signals that it is confident about achieving its inflation target, this could boost the JPY.
Conversely, if the BOJ signals that it is unlikely to achieve its inflation target, this could weaken the JPY.
The BOJ's policy could also impact market sentiment towards the Japanese economy, which can influence the JPY. If the BOJ signals confidence in the economy, this could boost the JPY.
However, if the BOJ expresses concern about the economic outlook, this could weaken the JPY.
Lastly, the BOJ's policy can impact the overall market sentiment towards risk. If the policy shift is seen as positive for risk sentiment, this could weaken the JPY, as investors shift towards riskier assets. Conversely, if the policy shift is seen as negative for risk sentiment, this could strengthen the JPY, as investors shift towards safer assets.