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Forex Flash: Yen weaker as BOJ speculation mounts - BTMU

FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that most Asia equity markets are higher today following on from the gains yesterday in the US as the fears over the fallout from the Cyprus banking sector deal continue to ease.

He feels that the focus is now beginning to shift to the upcoming BOJ meeting next week (3rd-4th April) in part due to the news story reported by the Nikkei newspaper yesterday on what the BOJ is planning to announce next week. This is much along the line of what he had previously suggested and the Nikkei reported that the BOJ will combine its regular monthly Rinban operations with its operations conducted under the Asset Purchase Program. Currently, the BOJ purchases JPY 1.8trn worth of JGBs under Rinban while through its APP operations the BOJ is committed to buying JPY 20trn of JGBs in 2013 to take JGB holdings under APP from JPY 24trn to JPY 44trn.

Further, Halpenny adds that the BoJ has also promised to purchase JPY 15trn worth of T-Biills this year as well, so by combining JGB purchases under Rinban and APP, the BOJ will commit to buying about JPY 3.5trn worth of JGBs per month this year, or nearly USD 37bn. By combining the two operations the BOJ is effectively abandoning the self-imposed rule from 2002 not to hold a larger amount of JGBs than banknotes in circulation.

He adds that with no formal rule, the BOJ will effectively be free to act as aggressively as it sees fit. It also means the 3-year limit on APP JGB purchases will also be scrapped. He notes that if this is announced next week, Governor Kuroda will likely want to ease policy further at the same time, so an increase in the monthly amount to say JPY 4.0 trillion per month is also possible. That would leave the BOJ buying about half of what the Fed buys in terms of long-term securities on a monthly basis but with the Japanese economy only about one-third the size of the US economy, in GDP terms the BOJ is now being much more aggressive than the Fed.

Halpenny finishes by writing, “The new more transparent format of one simple monthly purchase figure will highlight this fact to the markets. A more aggressive BOJ than the Fed will certainly help support USD/JPY but with the above scenario largely expected in the market, we still maintain that over the coming months there remains a high risk of a further temporary correction lower in USD/JPY back close to 90.00 as the BOJ merely meets current high market expectations.”

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