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The yen took hits as the BOJ showed no signs of tapering, while weekend news from Italy weighed on the euro.

  • Japan’s services producer price index up by 0.7% as expected vs. 0.8% in April
  • BOJ: “Crucial” to maintain easy policies to keep the economy expanding
  • BOJ: Still a long way to go to achieve 2% CPI target
  • BOJ: Timing of exit “cannot be foreseen”

Major Events/Reports:

BOJ’s Summary of Opinions

Remember that in mid-June the Bank of Japan (BOJ) kept its policies unchanged as markets as expected. Fast forward to today and we finally have a peek at what Governor Kuroda and his gang had talked about.

There were a lot of meaty points in the BOJ’s opinions summary release earlier today, but we can boil them down into three points.

First is the recognition of improvements in economic conditions. The BOJ reiterated that external demand is seeing an “increasing trend,” while domestic factors such as business fixed investment and private consumption are also “gaining momentum.”

But it’s the tightening labor market that has BOJ members giving their thumbs up, it seems. Apparently, the fact that small and medium-sized firms are raising their wages is “significant for achieving higher inflation.

The BOJ is expecting wages to increase – especially in small and medium-sized firms – in FY 2017 due to “upturn in overseas economies” and improvement in labor productivity. However, it also qualified that “There is still a long way to go before wage increases stemming from the tightening in labor markets lead to price rises.

Speaking of price increases, it seems like BOJ members aren’t as optimistic on the issue as they were on Japan’s other economic conditions. According to the summary, “a remarkable improvement has yet to be seen” even though annualized CPI will “gradually increase” toward their 2% target.

This leads us to the last point. With Japan’s economic conditions improving and the BOJ’s balance sheet ballooning, Kuroda’s team has recognized that there’s “growing interest in the policy exit.”

But the BOJ has its eyes on the prize, as members believe that “The most effective way to achieve the price stability target of 2% is to continue with the current monetary policy,” adding that “It is crucial to maintain accommodative financial conditions and keep the economy expanding as long as possible.” Can they BE any clearer on their point?

For now, Kuroda and his team plan to “improve its communications” so as not to cause speculations of scaling down in the foreseeable future. After all, the timing for a policy exit is so distant that it “cannot be foreseen.”

Despite that, a member has talked about reducing their monthly asset purchases, saying that “the Bank cannot avoid the situation where the JGB purchases will become more difficult” if they keep up their current 80 trillion-yen limit. He said that it’s “necessary to reduce the pace of purchases to an annual pace of increase of 45 trillion yen.

Italy to pay billions to bail out two banks

Over the weekend, Italy announced a deal that would pay Intesa Sanpaolo – Italy’s best-capitalized large bank – €5.2B and fund guarantees of up to €12B so it would take over assets of Banca Popolare di Vicenza and Veneto Banca after the two banks failed to raise capital amidst bad loans and mis-selling scandals.

This means that Banca Popolare and Veneto’s branches and employees will be part of Intesa by today, which somewhat eases bank run tendencies that could have weighed on the whole banking industry.

Italy’s regulators have spent months negotiating with their EU counterparts so that the plan will allow junior bondholders and shareholders to suffer losses, while senior bondholders and depositors will be protected.

Remember that EU’s rules would have imposed losses on senior bondholders, which is a political risk considering that Italian households hold a large chunk of bonds issued by banks.

The deal will have to be voted into law by parliament within 60 days, but already market players aren’t happy that the government is footing a bill that’s thrice the size of its earlier estimates.

Major Market Mover(s):


The common currency weakened across the board after two of Italy’s banks folded with the government having to foot the bill.

EUR/USD is down by 11 pips (-0.13%) to .8782, EUR/AUD is down by 37 pips (-0.25%) to 1.4769, and EUR/CAD is down by 12 pips (-0.08%) to 1.4843.


The yen lost against its major counterparts thanks to the BOJ’s summary of opinions scratching out the possibility of tapering anytime soon.

USD/JPY is up by 11 pips (+0.10%) to 111.31, AUD/JPY is up by 29 pips (+0.35%) to 84.38, and GBP/JPY is up by 29 pips (+0.21%) to 141.91.

Watch Out For:

  • 8:00 am GMT: German IfO business climate (114.7 expected, 114.6 previous)
  • 8:30 am GMT: BBA mortgage approvals (40.3K expected, 40.8K previous)