USD/JPY dove through the 79.50 tripping stops all way to 79.30 in the wake of the BOJ announcement to increase its QE program by 11 trillion yen as expected, with many traders hoping that Japanese monetary officials would deliver a bigger boost. The BOJ announced it would expand its program from 80 trillion to 90 trillion yen with a program that would include purchase of T-bills government bonds and a small slice that would be allocated to riskier assets such as ETFs. The purchase program will be

Although the 10 trillion expansion of QE is a significant move by the BOJ, it was well anticipated by the market after the Nikkei newspaper leaked the details last week. Therefore today’s announcement was highly anti-climactic creating a classic sell the news dynamic. Some speculators in the market were anticipating an expansion of QE to 20 trillion or more and today’s action was viewed as too little too late.

The action of the BOJ was particularly paltry in view of the developments in the US where tropical storm Sandy wreaked massive economic havoc on the Eastern seaboard that may force the Fed to inject yet more liquidity into the financial system as US capital markets attempt to recover from one of the biggest natural disasters in recent memory. The Japanese officials therefore remain hopelessly behind the curve as their best laid plans at stimulus are overtaken by events across the globe and the yen remains unnaturally strong frustrating their efforts to stimulate the country’s export sector.

For now USD/JPY has managed to hold above the 79.00 figure but if risk aversion flows accelerate as the week progresses, the pair faces the risk of breaking that key support and fully unwinding its recent rally