Yen Weakens Across the Board as BOJ Does Not Budge from QE

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Market Drivers October 31, 2017
BOJ maintains full on QE
NZ – ban on foreign houses in effect in 2018
Nikkei 0.73% Dax 0.09%
Oil $54/bbl
Gold $1275/oz.

Europe and Asia:
AUD New Home Sales -6.1% vs. 9.1%
JPY – BOJ Full on QE in place
EUR GDP 2.5% vs. 2.1%

North America:
CAD GDP 8:30

Japan is experiencing its best expansion in 16 years, the stock market is at 2 decade high and labor conditions are at their tightest levels in a generation. All of this has occured while inflation remains well below the 2% target. The BOJ, therefore, sees no need to decelerate its massive QE program that includes not only bond but stock buying as well.

That policy stance puts the BOJ in stark contrast to the rest of the G-7 members where the tilt is now towards tightening rather than further easing. Assuming this divergence persists over the next year the yen should continue to weaken as it becomes the most liquid candidate for funding currency in the carry trade. However, for the carry trade to truly take off US yields would have to rise further.

Elsewhere, the commodity dollars were weak with Aussie getting hit on very poor new home sales numbers which contracted by -6.1% versus 9.1% eyed and kiwi hurt by news that government will ban existing home purchases by foreigners in order to cool off the housing market. Still, both pairs held support for now and may bounce if carry trade appetite returns.

In North America the US calendar is barren but the market will get a glimpse of Canadian GDP which is expected to print at just 0.1% versus 0.0% the month past. If the number misses the loonie could weaken further and USDCAD could hit 1.2900 as the day proceeds.

Boris Schlossberg
Managing Director

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