The Bank of Japan, as it always does, surprised markets by moving the benchmark rate into the negative territory at -0.10% and the USD/JPY strengthened more than 300-pips.
Stay tuned as the marginal chance could become a certainty in next six months amid retaliation and counter retaliation from major central bankers.
Reaction in the Japanese markets
- USD/JPY up more than 2%
- Japan now has negative yields on 7-year government bond
- Nikkei closed with 2.8% gain.
Moderate risk-on, but no fireworks
- The equities across Europe rallied. The DAX was up around 0.60% before the US opening bell, but has now extended gains to trade 1.4% higher. The Dow also advanced 1.2%.
- Meanwhile, the GBP/JPY and EUR/JPY are up 1.3% each.
- US treasury yields dropped. The 10-year yield fell to four month low, while the 2-yr yield hit three month low
- BOJ moved to uncharted territory and
- Speculation the bank is no more comfortable with purchasing more JGBs and hence resorting to negative rates.
GBP/USD drops sharply, BOE rate cut ahead?
- The GBP/USD is down 1%. The high yielding currencies – AUD, NZD are unable to do much against the USD
- The negative rate in Japan means more outflows from Japan in search of high yields. This should have led to a much sharper rally in the JPY crosses – GBP/JPY and thus should have lend support to the GBP/USD pair.
- However, the cable is down 1%, which clearly indicates the markets believe negative rates in Japan would force the Bank of England to delay its rate hike even further.
- EUR/USD is down as well, again due to speculation that ECB would have to do more. More pressure on the ECB also means pressure on the BOE. BOE benchmark rate stands at 0.5% and the bank certainly has room to cut rates, given the ECB, SNB and BOJ are in the negative territory.
- We have already seen BOE make a transition from “rates could rise at the turn of the year†to “now is not the time to hike rates†on account of low inflation and strong GBP. The transition was anticipated here (https://www.fxstreet.com/analysis/macro-scan/2015/03/25/) last year in March.
- Hence, it would not be surprising if the BOE actually moves towards rate cut now.
Stay tuned as the marginal chance could become a certainty in next six months amid retaliation and counter retaliation from major central bankers.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD buyers stay directed toward 0.6800 after China's inflation data
AUD/USD extends gains toward 0.6800 in the Asian session on Monday, recovering from a three-week low touched on Friday. The pair holds higher ground, undeterred by the softer-than-expected China's inflation data amid a pause in the US Dollar recovery and risk reset.
USD/JPY clings to recovery gains below 143.00
USD/JPY is holding recovery gains below 143.00, positively kicking off the new week. Friday's late US Dollar rebound and Japan's Q2 GDP downward revision support the pair, though the divergent BoJ-Fed policy expectations should cap its upside. All eyes remain on US CPI data due later this week.
Gold price consolidates below $2,500 mark, bullish potential seems intact
Gold price stalls the post-NFP retracement slide from the vicinity of the all-time peak. Reduced bets for a larger rate cut by the Fed underpin the USD and act as a headwind. Worries about the US economic slowdown and geopolitical risks continue to offer support.
Bitcoin risks further decline below $54,000
Bitcoin hovers around the $54,000 support level; a firm close below would suggest a decline ahead while Ethereum and Ripple prices approach their key resistance levels; rejection would suggest continuing the downward trend.
Week ahead: ECB poised to cut again, US CPI to get final say on size of Fed cut
ECB is expected to ease again, but will it be another ‘hawkish cut’? US CPI report will be the last inflation update before September FOMC. UK monthly data flurry begins with employment and GDP numbers.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.