Yen Sell-Off Accelerates On BoJ Easing Bet After FOMC Meeting

While the dollar was broadly pressured after Fed's extension of the quantitative easing, it's the Japanese yen that's suffered most. Fed's easing measures met generally market expectations but it was the adoption of unemployment and inflation thresholds that surprised the markets. It's perceived by analysts as a clear commitment to bring back recovery that cleared any uncertainties on the monetary policy stance.

Fed's moves are expected to prompt Japanese politicians to further pressure the BoJ on its own policies. So far, BoJ has just adopted a 1% inflation target, which is even out of sight based on what the central bank is doing. In particular, after the former prime minister Abe's opposition LDP wins the election on December 17, further pressure will be piled on BoJ, not just on bringing Japan out of deflation, but also on growth. USD/JPY jumps to as high as 83.63 in Asian session and is rebuilding momentum. GBP/JPY made another 2012 high as 134.97 and is already showing acceleration. EUR/JPY also jumped with strong momentum and is set to take on 110 before the week closes.

The Fed announced at the FOMC meeting that it will expand QE3. It will purchase longer-term Treasury securities at a pace of USD 45B per month after Operation Twist expires at the end of December. Purchases will be open-ended, additional to current purchases of mortgage-backed securities totaling USD 40B per month. Moreover, the FOMC has replaced its time-based guidance on monetary stance with specific numbers for inflation and unemployment rates.

The Fed would keep its easy money policies in place until unemployment rate reaches 6.5% or inflation is about to exceed 2.5%. Concerning the economic outlook, the Fed noted that employment continued to expand at "a moderate pace" recently with the unemployment rate declining somewhat although "it remains elevated." Inflation was running "somewhat below" the Committee's longer-run objective excepting the impact of energy prices. The FOMC staff projection showed a small downward revision in near-term expectations for the unemployment rate.

In Europe, it's reported that after marathon talks, finance ministers from the 27 EU countries have finally agreed on a deal on banking supervision and hand ECB the watchdog role. Germany and France seemed to have found a compromise on ECB's role and the point where ECB should intervene.

The new supervisory system is expected to be up and running by the end of 2013 and it's now waiting for EU leaders, who're meeting today and tomorrow, to give political backing. In Italy, former prime minister Berlusconi said he would withdraw his bid to be prime minister and accept to be the coordinator of the coalition if current prime minister Monti agrees to be part of a coalition of moderates.

SNB rate decision will be a major focus today and is expected to keep the LIBOR at 0-0.25%.The EUR/CHF floor is also expected to be kept unchanged at 1.2. Recently, there has been much volatility seen in EUR/CHF as triggered by the move from Credit Suisse and UBS on charging bank clients on Franc deposits. But upside is so far capped. If SNB does nothing special today, we might see EUR/CHF spiral back down below 1.21.

On the data front, New Zealand business NZ manufacturing index dropped to 48.8 in November. Australia consumer inflation rose 1.8% in December. Canada new housing price index, US PPI, retail sales, jobless claims and business inventories would be released later today.