"USDJPY extended its upward momentum into Ueda's press conference, but we would expect strategic interest to fade into 137 (~200dma)" - TD Securities. 

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The Pound to Japanese Yen exchange rate reached new highs for the year in the final session of the week to place it within arm's reach of 2022 highs after the Bank of Japan (BoJ) indicated that it could be some time before conditions are right for it to consider a change in monetary policy.

Japanese exchange rates were universally lower on Friday after local bond yields tumbled after the Bank of Japan said in its monetary policy decision under new Governer Kazuo Ueda that it would launch a new "a broad-perspective review," of its monetary policy over the last quarter century.

"We would certainly not link the length of time the assessment may take to a signal of there being no change in monetary policy over the same period," says Derek Halpenny, head of research, global markets EMEA and international securities at MUFG, Japan's largest lender.

"The assessment has been launched in the context of a much bigger picture – Japan falling into deflation in the 1990s and the “challenge” for the BoJ in achieving price stability over that period," Halpenny adds. 

Above: Pound to Yen rate shown at daily intervals alongside USD/JPY.  

There has long been debate in Japan about the extent to which changes in borrowing costs are actually able to influence inflation and the BoJ's latest stock taking excercise is indicative of that question being far from settled, and a potential subject of inquiry under the new governor.

"In the 1980s, Ueda became famous as a mediator in the seemingly never-ending controversy between economists over the control of money supply by central banks," says Shigesaburo Okumura, Asia Editor-in-Chief for NIKKEI, in a February newsletter. 

But while the launch of a review would appear to suggest no change on the horizon, with the excercise expected to stretch over a year or more, the BoJ also appeared to hedge its bets on Friday when abandoning earlier forward guidance suggesting protracted policy easing still remains ahead.

"The BoJ didn't just tweak its forward guidance as reported earlier in the Nikkei, but removed it entirely, discarding reference to Covid-19 and the comment that rates would remain at current or lower levels," says Mazen Issa, a senior FX strategist at TD Securities. 

Above: Pound to Yen rate shown at weekly intervals alongside USD/JPY.

"While the 1-1.5y time frame for the BoJ review is much longer than expected, it is not clear that this will be overwhelmingly bearish for the yen. USDJPY extended its upward momentum into Ueda's press conference, but we would expect strategic interest to fade into 137 (~200dma)," Issa adds.

The Yen remained comfortably above earlier lows against the Dollar on Friday and quite possibly due to the large declines in U.S. government bond yields over the recent months, though UK government bond yields have fallen by much less in that time; potentially why the Pound outperformed ahead of the weekend.

With the review and changes to guidance aside, the BoJ left its Yield Curve Control programme unchanged perimitting the 10-year bond yield to trade as high as 0.50% and as low as -0.5% until inflation "exceeds 2 percent and stays above the target in a stable manner," while its main interest rate was held at -0.1%. 

"We still look for a removal of YCC regime, interest rate hike at some stage this year amid broadening inflationary pressures (Tokyo core CPI rose to another record high) and upward pressure on wage growth in Japan," says Frances Cheung, a rates strategist at OCBC Bank. 

The BoJ's announcement can be found here, and its economic outlook here.