BOJ intervenes to weaken the JPY

Market Brief

The USDJPY pared gains on speculation the BOJ’s decision to introduce more credit-easing measures won’t be enough to weaken the currency from near a 15-year low while the EURJPY also trimmed gains after the bank expanded a corporate loan program by 10 trillion JPY ($116 billion), falling short of expectations it would unveil more steps, such as buying Japanese government debt, to support the economic recovery and kept lending rates unchanged at 0.1%. The AUDUSD traded near a one- week high as gains in stocks and commodities boosted demand for currencies linked to growth. The USDJPY was at 85.38, EURJPY was at 108.81, EURUSD declined to 1.2739. Prime Minister Naoto Kan, who is compiling his own stimulus measures to spur growth, said on Friday he expects the bank to implement policy “swiftly.” The BOJ needs to reverse its unwillingness to enact additional credit easing and make it clear that it is fighting against deflation and a strong JPY and may need to offer surprises, such as increases in outright purchase of government debt, to bring a definite end to the JPY’s advance. Pressure on the bank has been mounting since it kept its key overnight lending rate at 0.1% and refrained from expanding credit measures before the USDJPY dropped to 83.60, the weakest since June 1995. The MSCI Asia Pacific Index advanced 1.2% while Nikkei 225 gained 3.2%, S&P/ASX 200 Index gained 1.6% Kospi index climbed 1.6%, Hang Seng Index rose 0.7%, Shanghai Composite Index increased 1.4% and S&P 500 Index Futures increased 0.5%.

Bernanke talking to central bankers and economists on Friday, made his strongest statement yet that the Fed alone can’t keep the recovery going with both the ECB and BOE seeking increase to their monetary policy measures. Strong and stable growth will require appropriate and effective responses from economic policy makers across a wide spectrum as well as private-sector leaders. While Bernanke said the Fed’s remaining tools, including asset purchases, will work if needed, some members said during the weekend that the effects of such quantitative-easing measures may be weak or that fiscal policy should play a bigger role. Pressure for action may build this week as economists predict data to show hiring, manufacturing and household purchases cooled further in August. The Non-farm payrolls to be released on Friday will be a main focus this week as private payrolls probably rose by 47,000 this month after a 71,000 July gain, the unemployment rate increased to 9.6% from 9.5% while factories expanded at the weakest pace in almost a year, according to a report due on Sept. 1.

The AUDJPY and NZDJPY pared gains on speculation the Bank of Japan’s decision to expand its loan program will be insufficient to halt the currency’s appreciation. The BOJ didn’t go beyond the market’s expectations such as buying more government bonds, disappointing investors, as a result, cross currencies are paring gains against the JPY. AUDJPY traded at 76.78 while NZDJPY traded at 60.94 and AUDUSD traded at 0.8992. Gains in the Kiwi were tempered after a report showed the nation posted a trade deficit for the first time in seven months of NZ$186 million ($132 million) from a revised NZ$214 million surplus the previous month.

Currency Tech

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot