Asian Session Forex Recap – Sept. 21, 2016

Article Highlights

Japan’s trade balance shows 0.41T JPY surplus vs. 0.34T JPY previous
AU MI leading index clocks in at 0.0% vs. 0.1% previous
NZ credit card spending (y/y) up by 1.9% vs. 5.6% previous
BOJ keeps its interest rates steady but…

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It was all about the BOJ during the Asian session, as the central bank announced its tweaks to its monetary goals and policies. What exactly did Kuroda and his gang say?

Major Events:

BOJ tweaks its policies – As many had expected, the Bank of Japan (BOJ) kept its interest rates steady at -0.1% for the month of September. However, the central bank also combined its “Quantitative and Qualitative Monetary Easing (QQE)” and “QQE with a Negative Interest Rate” programs to create the “QQE with Yield Curve Control.”

If it sounded more like a car with new features to you, fret not. All you need to know is that the program has two major components:

Yield curve control
– The BOJ will control both short and long-term interest rates.
– Short-term rates will remain at -0.1%.
– The BOJ will buy or sell Japanese government bonds (JGBs) to keep the 10-year yields around its current levels (0.0%).
– The annual pace of monetary expansion will more or less remain at around 80 trillion JPY
– The current range of maturities will continue to be eligible though the guideline for average remaining maturity of JGB purchases will be scrapped.
– Outstanding balances of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) will increase at annual paces of 6T and 90B JPY, respectively.
– Outstanding CP and corporate bonds will remain at 2.2T and 3.2T JPY, respectively.

Inflation-overshooting commitment
The BOJ is now committing to expand its monetary base until inflation EXCEEDS and stabilizes above its 2.0% target.

The yen strengthened across the board as a knee-jerk reaction to the lack of changes in the BOJ’s interest rate. However, the yen lost ground as soon as market players got hold of the central bank’s changes in priorities.

BOJ Governor Kuroda is expected to give a press conference some time during the London session, so watch out for any dovish comments that could extend the yen’s decline!

Recovery in oil prices – Oil prices saw upticks during the Asian session thanks to Japan reporting higher oil imports and Uncle Sam showing a decline in inventories.

Japan’s Ministry of Finance reported a 0.5% increase in customs-cleared crude imports in August from a year earlier. Meanwhile, the American Petroleum Institute (API) showed a 7.5 million-barrel decrease, the third weekly decline in crude stocks.

Brent crude oil is up by 1.42% to $46.53 while U.S. crude oil is also 1.91% higher at $44.89.

Major Market Movers:

JPY – The yen shot higher across the board on the lack of changes from the BOJ, but soon shot higher when traders realized that the BOJ is stepping up its efforts at meeting its inflation targets.

USD/JPY fell to a session low of 101.22 before recovering to 101.93 (+0.18%) while EUR/JPY slipped to 113.43 before ending the session at 113.67 (+0.12%). Ditto for AUD/JPY, which fell to 76.57 before shooting back up to 77.04 (+0.25%).

Watch Out For:

BOJ’s Kuroda to give a speech some time during early London trading
8:30 am GMT: U.K. net public borrowing 10.5B GBP vs. -1.5B GBP previous
11:00 am GMT: BOE quarterly bulletin