Market Update: Nikkei Down, Further Declines For USD/JPY

The following statement from the BoJ’s monetary policy announcement last night pretty much sums up the market’s reactions:

“Regarding risks, there remains a high degree of uncertainty concerning Japan’s economy, including the prospects for the European debt problem and the growth momentum of the U.S. economy as well as the emerging and commodity-exporting economies” - BoJ Statement

The market had expected some sort of action out of the BoJ to help dampen recent levels of volatility within JGB yields but the call was not answered and the market responded accordingly:


(Source: Bloomberg)


Meanwhile, the Nikkei ended down -1.45% for the session with US equities selling off hard into the start of NY session. USD/JPY declined further after yesterday’s failed attempt to break the 99 barrier and is now straddling a key pivot level around the 97 handle. The bond markets ignited globally overnight with US 10Y Yield +28bps, German 10Y Yield +18bps, and Japan 10Y Yield +9bps. In hindsight, the break of 14 month highs in US yields yesterday was a precursor to the overnight action. Further momentum to the upside in global yield curves will need to be closely monitored as the bond market has been a dominant leading indicator for both the equity and FX markets.




The next big item for this week’s calendar is the German Federal Constitutional Court(FCC)’s decision regarding the legality of the ESM and OMT program within Europe. The hearing will entail evaluations on the scope and boundaries of the ECB’s monetary policy mandate, consequences of the OMT programme, the role of the Bundesbank in the European System of Central Banks, and the possibilities of the parliament and government to react and respond to the ECB’s policies. With the markets already on edge and walking a thin line, there is unlikely to be any major changes as a result of the two day hearing as it could potentially send shockwaves across the financial markets. The EUR/USD has been pushing higher into the early morning session now testing the 1.3300 resistance.

Although short term correlations point to further weakness in the Dollar, I would speculate that this is simply a correctional phase and that the primary trend of USD strength will come back into the spotlight after the dust settles. If bond yields start pulling back from its highs and equities levels stabilize, I would be looking for support in USD/JPY for a push to the upside and weakness across the major currencies vs. the Dollar.