BOJ Retreats From QE - Yen Strengthens

Last updated 10/30/2009 3:32 AM EST (GMT -5) 3 Comments

Boris Schlossberg

Director of Currency Research, GFT

Bank of Japan maintained its overnight interest rate at 0.10% - the lowest in G10 universe – but removed some key stimulative measures which triggered a small rally in the yen. The central bank stated that it would end its outright purchase of corporate bonds and commercial paper in December noting that “it becomes necessary to adopt the most effective method for money market operations that conforms to changes in financial markets.

The yen was also helped by an impressive decline in the unemployment rate to 5.3% from 5.6% the month prior - the third such monthly improvement in a row. The applicant to job ratio also inched higher to 43 from 42 the period prior but it remains at multi year low levels and suggests that labor markets continue to be sluggish but have clearly bottomed out.

Tonight’s eco data and concomitant actions by the BOJ indicate that Japanese monetary officials are beginning to see signs of stabilization in the Japanese economy after it experienced the worst contraction in the post war era earlier in the year. The BOJ is likely to remain cautious for another quarter at minimum, but its gradual retreat from the money markets suggest that it no longer feels that economic conditions merit emergency measures.

USD/JPY drifted below the 91.00 handle on the more hawkish tone of the BOJ policy statement, but for now appears to be rangebound between 90.00-92.00. The yen strengthened at the start of the week on risk aversion flows as key carry trades against the Aussie and the kiwi were unwound, but may trade towards the 92.00 figure once again if the risk FX remains bid into the North American open.

Comments (3)

FXDragon

October 30, 2009 at 07:34 AM ET

Hello Boris,
Why did Japan face deflation for several years in the past? And they still are.

Thanks,

bschlossberg

October 30, 2009 at 08:32 AM ET

They are still working off the massive debt bubbles from the 1990's and government stimulus has not been able to spur growth

GORODN

October 30, 2009 at 11:30 AM ET

Yup looking at P&F charts i would expect the yen to continue to strenghten very well. pushing usd/jpy down to 85.00 or lower

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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.