Technical Analysis

ForexLive Asia-Pacific FX news wrap: BOJ pivot sends the yen rocketing higher across board


You
thought the World Cup final was exciting?

The
Bank of Japan dropped its long-awaited pivot bombshell into the
market today. While the initial reports out of the BOJ statement were
that the two main policy planks:

  • a
    -0.1% target for short-term rates
  • and
    a cap for the 10-year bond yield around 0%

remained
unchanged, as indeed they did, the shock to markets came in the
detail:

  • that
    the BOJ will expand the band around its 10 year yield target to 0.5%
    above and below (from 0.25%)

This
is a change to BOJ Yield Curve Control (YCC), a long-, long-awaited
one. It’s a small change, but its significant. In effect it’s a
slight lessening of easy policy. Very slight. But, given the market
had basically settled on expecting no change from the Bank until
Kuroda’s term expires in April 2023 it slammed markets.

USD/JPY
collapsed, from around 137.30 prior to the statement to lows circa
133.13.

The
Bank of Japan dropped the pivot bombshell in the middle of the Tokyo
lunch break. Physical stock trade was shut for the lunch break.
Futures trade continued, though, down over 4%. As I post Japan’s
exchange has reopened for afternoon trade, the Nikkei shed over 2%.
Equity indexes elsewhere around the globe fell also; ES and NQ took a
hit.

Also
as I post the yield on the 10 year JGB has jumped to 0.455%, its
highest since 2015. The Osaka Exchange has halted 10yr JGB futures
trade, limit down. Yields in other countries rising also.

As
a counter to the YCC ‘tweak’ (as some are describing it …
sheesh, biggest tweak ever) the BOJ said it’ll be increasing
purchases of JGBs to 9tln/month.

In
widening the band the BOJ said:

  • “the
    functioning of bond markets has deteriorated… If these market
    conditions persist, this could have a negative impact on financial
    conditions.”

Elsewhere:

  • the
    People’s Bank of China left the 1- and 5-year Loan Prime Rates
    (LPR) unchanged, as widely expected
  • RBA
    minutes of the December meeting were strogly suggestive of further
    rate hikes to come in Australia
  • the
    Bank of Japan pivot sent EUR, AUD, GBP and others on a wild ride as
    yen crosses responded

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