Japan GPIF approves cutting JGB allocation to 35%

Good Morning,

- Japanese stocks jumped more than 5 percent and the yen skidded to nearly seven-year lows against the dollar at 111.34, after the Bank of Japan surprised markets…

- The Bank of Japan unexpectedly boosted its unprecedented monetary easing and will increase purchases of riskier assets in a renewed effort to reflate the world’s third-biggest economy. In the first policy change since Governor Haruhiko Kuroda began record asset purchases in April last year, the BOJ said it is targeting an 80 trillion yen ($726 billion) expansion in the monetary base, up from 60 to 70 trillion yen before, according to a statement in Tokyo today. The board was split 5 to 4 on the decision. Only 3 of 32 economists surveyed by Bloomberg News forecast the BOJ would expand stimulus .

- Japan's annual core consumer inflation slowed for a second straight month in September, adding to evidence the BOJ is likely to miss its price goal.

- BOJ Outlook for Economic Activity: From fiscal 2014 through fiscal 2016, Japan's economy is likely to continue growing at a pace above its potential as a trend, while it will be affected by the front-loaded increase and subsequent decline in demand prior to and after the consumption tax hikes.The year-on-year rate of increase in the consumer price index (CPI, for all items less fresh food and excluding the direct effects of the consumption tax hikes) is likely to be at around the current level for the time being, and subsequently accelerate gradually and reach around 2 percent around the middle of the projection period; that is, in or around fiscal 2015. Thereafter, Japan's economy is expected to shift to a growth path that sustains such inflation in a stable manner.

- Japan GPIF approves cutting JGB allocation to 35% and raising domestic and foreign equity allocations to 25% each, as expected.

- UBS on EUR/USD: Investors are almost uniformly bearish on the euro, but their positioning appears to be lagging, at least on the real money side, notes UBS. "The fundamental picture is gloomy for the Eurozone, but this is widely expected and might thus be in the price. Economic underperformance may thus not be enough to drive the euro down," UBS argues. Fundamentally, the large external surpluses remain a positive. However, global reserves not growing anymore might turn into a negative as diversification flows have provided substantial euro support over the last few years. Yet the most important euro negative might be exogenous once again: The Fed slowly but steadily normalising its monetary policy stance," UBS clarifies. All in all moderately bearish: "Our analysis of the various cross currents leaves us moderately bearish on the euro...As a result, we stick to our 3m EURUSD target of 1.25, envisaging a more aggressively bearish call only if the Fed were to accelerate its pace,"

- U.K. consumer confidence weakened this month as Britain’s’ outlook for the economy deteriorated, according to GfK NOP Ltd. A measure of consumers’ expectations for the economy over the next 12 months dropped 2 points to 2, the lowest since February. U.K. economic growth cooled in the third quarter and threats to the recovery from the euro-area slump have mounted since then.

- David Cameron has said it would be "lovely" for interest rates to remain at historic lows "forever" because it will allow families “to buy the homes they can afford”. The Prime Minister said that Britain’s low interest rates are “good news” because it has made owning a home more affordable. He agreed with a voter who told him that a rise in rates could make life “very hard” for homeowners.

- Watch today: Eurozone CPI, US inflation.

Have a nice Weekend !