BOJ Kills Talk of More QE – USD/JPY Tumbles

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Market Drivers October 30, 2015

BOJ offers no plans to ease further USD/JPY drops
Commodity dollars better bid on positive data
Nikkei 0.78% Europe 0.22%
Oil $45/bbl
Gold $1148/oz

Europe and Asia:
JPY BOJ has no further plans to ease
AUD PPI 0.9% vs. 0.3%
NZD ANZ Business Confidence 10 vs -18

North America:
CAD GDP 8:30

USD PCE 8:30

USD Chicago PMI 09:45

USD U of M 9:55

USD/JPY took a tumble in late Asian trade today dropping more than 100 points off its highs after BOJ Chief Kuroda reaffirmed that the central bank had no plans to increase the size of the current QE program.

In his post meeting press conference Mr. Kurora stressed that BOJ’s QE program was having its intended effects and was operating as planned but in its very own semi annual outlook the central bank cut both is inflation and GDP outlook. The BOJ cut inflation expectations for core CPI to 1.4% from 1.9% in 2016 and lowered its GDP forecast to 1,2% from 1.7% prior.

Although Mr. Kuroda blamed the softer pace of inflation growth on the decline in oil prices and remained confident that the bank would reach its intended 2% target 6 month later than planned, the currency market was decidedly more skeptical of his assessment. With BOJ lowering all of its growth forecasts while at the same time refusing to add any stimulus measures, traders saw little reason to be long USD/JPY and the pair quickly reversed all of its gains hitting a low of 120.30 in early London dealing.

Indeed given the BOJ’s reluctance to add further stimulus, the only hope of USD/JPY longs now lies with the Fed. The upside in the pair will be highly correlated with US data as any positive surprises would hasten expectations of Fed rate hike and keep USD/JPY bid above the 120.00 level.

Elsewhere, better data from both Australia and New Zealand helped the antipodeans put in strong rallies in Asian dealing session with Aussie retaking the 7100 figure and kiwi rising above 6750. In Australia the PPI print came in considerably higher than expected at 0.9% vs. 0.3% allaying fears that RBA may be forced to cut rates as early as November while in New Zealand the ANZ business confidence number rose to 10 from -18 prior on improvement in dairy prices. The unit is also benefiting from yesterday’s announcement that China will abandon its one child policy thus possibly increasing demand for milk as number of children rises.

In North America the calendar is generally subdued with only PCE, Chicago Fed and U of M data on tap. The market is looking for only minor improvements so the impact may not be large unless there is a large deviation from forecast. For now USD/JPY appears to be on the back foot as we close out the week and any downward surprises in US data could push it to a test of 120.00 as the day proceeds.

Boris Schlossberg
Managing Director

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