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Sharp contrast in Japan's monetary stance versus US and Eurozone - BTMU

FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ comments on the BoJ's easing action on Friday, which sent the JPY sharply down.

Key Quotes

"The financial markets are closed today in Japan for Culture Day but USD/JPY did manage to drift higher to an intra-day high of 112.99 with little to drive the market after Friday’s surprise monetary easing. What will quickly become clear over the coming days is that the action of the BOJ will shift the focus back onto the Abe administration and the '3rd Arrow of Abenomics'."

"Economy Minister Amari spoke today and stated that if Q3 GDP data indicated that the economy remained weak, then further stimulus would be required. Some media reports have suggested that the government is considering a stimulus injection of about JPY 2-3trn for this fiscal year, which could be added to next fiscal year if the sales tax increase goes ahead. But progress on other aspects of reform from labour market reform, corporate tax and governance reform and immigration reform will be important to reinforce the action taken by the BOJ last week."

"But there can be no doubt over the sharp contrast in the monetary stance of Japan versus the US and the euro-zone. The balance sheet expansion with the monetary base heading to somewhere between JPY 350-400trn will equate to about 70-75% of GDP in contrast to around 20% in the US and even less in the euro-zone."

"One note of caution on Friday’s announcements is perhaps not to read too much into the GPIF potential flow impact at this stage. The JGB holdings target was lowered considerably from 60% to 35%, but the caveat is the wide +/-10% band around within will be acceptable levels of holdings. There have already been newswire reports that the JGB allocation in Q3 fell below the 50% level, which would imply not a huge further shift to get within the acceptable allocation range."

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