An End to QE from BOJ?

Last updated 10/19/2009 4:01 AM ET (GMT -5) 4 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Bank of Japan minutes indicated that members are beginning to consider an exit strategy for the ultra accommodative policy including the end of the quantitative easing program to help corporate funding. "The amount of Commercial Paper and corporate bonds purchased by the Bank has declined significantly, and interest rates in fund-supplying operations ... have been stable at low levels," the minutes quoted a few members as saying.

If economic conditions continue to improve, the BOJ may decide to terminate the support for the corporate funding program at its next meeting in December. Some Japanese fiscal officials have expressed concerns that such moves by the BOJ may be premature, but the latest economic data supports the more hawkish posture by the monetary officials.

Today’s Tertiary Activity report which measures activity in the services sector printed at 0.3% versus 0.1% eyed. This was the third consecutive positive monthly result, albeit the pace of improvement was slightly less than the 0.7% increase the period prior. Nevertheless, tonight’s reports was only the latest data point to suggest that Japanese economic activity has pick up pace over the past several months despite the persistent strengthening of the yen which continues to weigh on the export sector.

USD/JPY came off the 91.00 handle in late Asian trade as the buck weakened across the board, but the pair continues to remain above the key 90.00 level. If US economic data provides further upside surprises this week the pair may rally further on the assumption that US policy makers will also begin to entertain the possibility of exiting from some of the extraordinary quantitative easing measures undertaken this year. If the market begin to anticipate any tightening in the US yield curve the dollar is likely to perform the best against the yen given the small interest rate differentials in the pair and USD/JPY could rally to 95.00. Such a move in turn would likely expedite the BOJ’s own removal of QE measures as exchange rate pressures on the Japanese export sector would ease considerably.

Comments (4)

FXDragon

October 19, 2009 at 09:49 AM ET

We're long usdjpy probably till 2nd week of Nov. Set to take profits around the 95 level. Disagreeing on a long term rally though Boris. We still think 86 level yet to be reached. If fed doesnt incrase rates ofcourse(which we seriously doubt till 2010). Lets see...

bschlossberg

October 19, 2009 at 10:29 AM ET

Yea my forecast is short term as well

Vstocks

October 19, 2009 at 11:22 AM ET

Guys, can you elaborate a bit more why short and not long term?

FXDragon

October 19, 2009 at 12:37 PM ET

fed rates ground zero

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.