Article Highlights

  • BOJ keeps rates and JGB purchases unchanged, doubles ETF-buying and lending program
  • Japan’s household spending (y/y) down by 2.2% vs. 0.4% decline expected, 1.1% slip in May
  • Tokyo core CPI down by 0.4% as expected vs. 0.5% decrease in June
  • Japan’s national CPI slips by 0.5% vs. 0.4% decline expected and previous
  • Japan’s retail sales falls by 1.4% vs. 1.2% decrease expected, 2.1% slip in May
  • Japan’s preliminary industrial production up by 1.9% in June vs. 2.6% decline in May
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It was all about the yen during the Asian session, as pre and post-BOJ jitters sent the currency all over the forex charts. What exactly did Kuroda and his gang have to say?

Major Events:

Japan’s data dump – Japan’s economic reports ended up being opening acts for the BOJ today, as the Land of the Rising Sun printed its inflation, employment, production, and household spending numbers.

The brightest star among the reports is the unemployment rate, which fell from 3.2% to 3.1%, the lowest since July 1995. Industrial production also offered a bright spot as it clocked in at 1.9% in June, higher the expected 0.5% increase for the month. Last but not the least, household spending showed a 2.2% annualized increase in June, beating the 0.4% uptick expected and the 1.1% increase in May.

Japan’s inflation numbers, perhaps the most closely-watched among the bunch, offered no relief for the Bank of Japan (BOJ). The nation’s core CPI slipped by 0.5% from a year earlier in June, missing the 0.4% decline expected, while the headline figure came in at -0.4% and marked the fourth consecutive monthly drop in a row. Meanwhile, Tokyo’s core CPI, widely considered a leading indicator, fell by 0.4% in July from a year earlier after dropping by 0.5% in June.

BOJ’s policy surprise – The tepid inflation numbers underscored the need for the Bank of Japan (BOJ) to step up its efforts in meeting its 2.0% inflation goals. Unfortunately for “helicopter money” junkies, the central bank didn’t bow down to pressures from both the market and the government.

If you recall, PM Shinzo Abe and Finance Minister Taro Aso have been nudging the BOJ into pushing the pedal further into the metal by hinting at a 28-trillion JPY stimulus package and need for cooperation in the government. Meanwhile, traders have been inflating their expectations for weeks, prompting the BOJ to at least do something this month.

Well, markets got what they wanted…sort of. Citing Brexit uncertainties, global growth slowdown, and volatile markets, Kuroda and his gang have decided to double their ETF purchases to an annual rate of 6 trillion JPY (from 3.3 trillion) and its USD-lending program to $24B. The BOJ kept its interest rates steady at -0.10% and left its asset-purchasing program untouched. Interestingly, Kuroda also ordered an assessment of the bank’s policy effectiveness for their next meeting in September 20-21.

When you serve tofu salad when your friend is hungry for a burger, there’s bound to be a reaction. The yen shot up across the board, pushing USD/JPY below the 103.00 handle after hitting a session high of 105.68. Yikes!

Major Market Movers:

JPY – The yen was all over the charts before AND after the BOJ printed its latest policy decisions. The currency eventually ended the day firmly in the green after Kuroda and his team released underwhelming plans.

USD/JPY shot up to a high of 105.68 before finishing with a 208-pip decline (-1.97%) to 103.29. EUR/JPY also hit a high of 116.95 before closing with a 189-pip loss (-1.62%) to 114.80 and GBP/JPY hit a high of 139.16 before ending the session with a 202-pip slide (-1.46%) to 136.63.

Watch Out For:

  • 6:00 am GMT: BOJ’s core CPI (0.7% expected, 0.8% previous)
  • 6:00 am GMT: Japan’s housing starts (-2.8% expected, 9.8% previous)
  • 6:30 am GMT: French preliminary quarterly GDP (0.2% expected, 0.6% previous)
  • 7:00 am GMT: German retail sales (0.0% expected, 0.9% previous)
  • 7:45 am GMT: French consumer spending and CPI
  • 8:00 am GMT: Switzerland’s KOF economic barometer
  • 8:00 am GMT: Spanish flash CPI (-0.5% expected, -0.8% previous)
  • 8:00 am GMT: Spanish quarterly GDP (0.7% expected, 0.8% previous)
  • 9:00 am GMT: Italian monthly unemployment rate (11.4% expected, 11.5% previous)
  • 9:30 am GMT: U.K. net individual lending (4.2B GBP expected, 4.3B GBP previous)
  • 9:30 am GMT: U.K. mortgage approvals (66K expected, 67K previous)
  • 10:00 am GMT: Euro Zone flash CPI estimate expected to remain at 0.9%
  • 10:00 am GMT: Euro Zone flash quarterly GDP (0.3% expected, 0.6% previous)

See more:

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