July 29, 2016

iFOREX, The Yen Surges on Disappointing BoJ announcing more stimulus

The Yen Surges on Disappointing BoJ announcing more stimulus and Eurozone Inflation was in line With Expectations.

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This article is originally referred from iForex Blog.

While U.S  and Canadian data showing disappointing growth, JPY gains strength on BoJ stimulus and ECB releases inflation expectation in line.

Here is the market analysis by iForex on BoJ and ECB announcement.

The Yen gained traction in the wake of the disappointing BoJ stimulus program dropping below 103.  The move failed to hit the Nikkei which initially sold off but was able to gain traction and close higher on the session.  European stocks were mixed following inflation and GDP data which were in line with expectations.

The BoJ announced more stimulus, doubling its lending program to $24 billion, and expanding its ETF purchase to an annual amount of JPY 6 trillion. But, it kept its policy interest rate flat at -0.10% and left its base money target unchanged at JPY 80 trillion. Governor Kuroda also called for an assessment of the BoJ’s policy at the next meeting in September. The actions have disappointed, however, as there had been speculation of a rate cut and an increase in the monetary base. There’s also market chatter that the BoJ may be concerned about the sustainability of its stimulus program.

JPY surged on the news with USD/JPY slumping 3 big figures, hitting a low of 102.72 from a high of 105.63. Yen volatility, already at an 8 year peak, is likely to remain high. Sources say hopes for more easing in September could keep the JPY from climbing to 100. Stocks have been choppy on the news. The Nikkei initially declined on the headlines, but buying resurfaced and the index has rallied to close up on the session.  The yield on the 10-year JGB is also surging toward -0.20% from -0.28%.

Eurozone Inflation was in line With Expectations

Eurozone preliminary July HICP inflation accelerated to 0.2% year over year from 0.1% year over year in June, in line with forecasts and early indications from national data, but a tad above consensus for a steady headline rate.

Core inflation remained unchanged at 0.9% year over year, higher than the headline rate in Eurozone Headline rates are starting to nudge higher, but mainly on the back of base effects from oil prices and with even core inflation at 0.9% year over year still far below the ECB’s upper limit for price stability, the data leaves Draghi still room to maneuver on policy adjustments, even if they alone don’t warrant further easing measures, especially as the ECB’s survey of professional forecasters didn’t suggest an uptick in long term inflation expectations.

Eurozone Q2 GDP slowed to 0.3% quarter over quarter, from 0.6% quarter over quarter in Q1. The deceleration in growth from the exceptionally strong Q1 rate was long anticipated and is partly also due to technical factors and the different timing of Easter this year, which means the first two quarters will have to be seen somewhat in conjunction.

Looking ahead the July survey round was much better than anticipated and leaves the central scenario of a rebound in Q3 intact for now, which backs the ECB’s wait and see stance, even if medium term risks remain tilted to the downside amid heightened uncertainty and geo-political risk factors.

Original Source: iForex Blog

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