The Bank of Japan held rates unchanged this morning, but two dissenters voted for a rate hike, which is being read as a hawkish signal amid an otherwise unchanged guidance.

Markets remain cautious with pricing

"The other surprise was the decision to start offloading ETF holdings at a pace of around $4.2bn by market value per year. Considering a total market value of ETF holdings of around $505bn in March, this is a rather slow pace, and we would not place too much emphasis on the decision."

"What matters most for the yen is the hawkish vote split. We have been calling for a rate hike in October, and the dissenters' vote makes us more confident in that view. Markets remain cautious with pricing, with around 14bp embedded in the OIS curve for the October meeting and 19bp by year-end."

"According to our model, the near-term fair value of USD/JPY is currently at 145.7, meaning the pair is overvalued even before counting in any hawkish repricing. Our 1M and 3M calls are 145 and 140 for USD/JPY, as discussed here."