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JPY Lost Ground As BOJ Adopts Negative Rates

Published 01/29/2016, 06:50 AM
Updated 03/07/2022, 05:10 AM

Market Brief

A few hours after the Japanese Ministry of Internal Affairs released depressing inflation figures, Governor Kuroda took the market by surprise as he announced that the BoJ will adopt negative interest rates, arguing it will stimulate investment and consumption. The market’s reaction did not take long. The Nikkei 225 jumped instantaneously by more than 4% to 17,638 points before collapsing to 16,767 points, to return finally above the 17,500 level. The sharp moves betray the market’s mixed feeling regarding the BoJ decision. Indeed, rumour are spreading that the central bank cut rates because either they realized that the marginal effect of an increase of the QE are very small - and they don’t want to expand their balance sheet further - or they couldn’t find any assets to buy. However, one thing is sure, inflation is still well below the BoJ’s target and showed no sign of picking up. On the FX side it was also rollercoaster session for JPY crosses. USD/JPY jumped from 118.50 to 121.41, then fell to 119.13 before bouncing back again to 120.70. In the end, the Japanese yen fell 1.50% against the greenback, 1.70% against the pound sterling, 1.10% against the euro and 1.15% against the Swiss franc. USD/JPY is currently testing the resistance implied by its 50dma (at 120.33). We expect the JPY to weaken further in the coming days as the negative interest rates will drive investors - the ones who were taking shelter amid the recent risk-off environment - out of yen positions.

G10 Advancers - Global Indexes

Elsewhere, Asian regional markets were almost all trading higher amid the BoJ’s decision. In mainland China, the Shanghai and Shenzhen Composite were up 3.09% and 3.71% respectively, while in Hong Kong the Hang Seng was up 2.27%. In Singapore the STI rose 1.90%, while in Taiwan the TWSE was up 2.22%. European futures are also trading higher with the Footsie up 1.09%, DAX +1.16%, CAC 40 +1.17% and SMI +0.95%. US futures are also wearing green this morning: S&P 500 up 0.83%, NASDAQ Composite 0.71% and Dow Jones Industrial Average +1.03%.

Yesterday, another fresh batch of weak economic data were released by the US. Durable goods orders collapsed by an astonishing -5.1%y/y in December, while previous month figures were revised lower from 0.0% to -0.5%. As a result the US dollar moved lower with EUR/USD hitting 1.0968. The dollar index fell to 98.43. However, the greenback recovered overnight amid the BoJ’s decision to bring rates into negative territory.

Today traders will be watching Turkish trade balance; CPI and GDP from Spain; unemployment rate from Norway; CPI from the euro zone; trade balance from South Africa; GDP and industrial price index from Canada; GDP, core PCE, Chicago purchasing manager and personal consumption from the US and Michigan Index.

Today's Calendar

Currency Tech
EUR/USD
R 2: 1.1387
R 1: 1.1095
CURRENT: 1.0894
S 1: 1.0458
S 2: 1.0000

GBP/USD
R 2: 1.5242
R 1: 1.4969
CURRENT: 1.4371
S 1: 1.3657
S 2: 1.3503

USD/JPY
R 2: 125.86
R 1: 123.76
CURRENT: 120.75
S 1: 115.57
S 2: 105.23

USD/CHF
R 2: 1.0676
R 1: 1.0328
CURRENT: 1.0178
S 1: 0.9786
S 2: 0.9476

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