Pre-NFP lull? Not for the BOJ! The central bank got busy as it bought unlimited JGBs to limit their yields.
- AU AIG construction index dips from 56.7 to 56.0 in June
- Japan’s average cash earnings (y/y) up by 0.7% vs. 0.4% expected, 0.5% previous
- Japan’s leading indicators rises from 104.2% to 104.7% vs. 104.6% previous
BOJ’s line in the sand hit
The biggest story of the hour is the Bank of Japan (BOJ) offering to buy unlimited amounts of 10-year JGBs at a yield of 0.110%, marking its first fixed-rate bond purchase since February.
Meanwhile, the central bank also raised its buying spree of five-to-ten-year JGBs through an auction from 450B JPY to 500B JPY.Recall that the BOJ announced in September that it would aim for 10-year JGB yields of “around zero percent.”
Seems like the line in the sand was hit this week, when yields of 30 and 40-year JGBs hit their highest since February while 10-year JGB yields hit a five-month high of 0.105% on the back of hawkish speculations for other central banks causing a global bond selloff.
Of course, it also doesn’t hurt that BOJ Governor Kuroda and his team won’t be operating on Monday. If the U.S. NFP report prints an upside surprise (as Forex Gump thinks it might), then today is the BOJ’s last chance to do a pre-emptive strike.
The move worked, as the yen sold off across the board while 10-year yields dipped to a more tolerable 0.085% today.
More risk aversion
Concerns over the G20 meeting this weekend, possible escalation of geopolitical skirmishes with North Korea, rising yields in the euro zone, and profit-taking ahead of the NFP report all combined to extend the risk-off vibes during the Asian session.
- Nikkei is down by 0.52% to 19,891.00
- Australia’s A SX 200 is down by 1.08% to 5,696.30
- Hang Seng is down by 0.46% to 25,349.00
- Shanghai index is down by 0.77% to 11,351.31
Major Market Mover(s):
The yen lost pips early in the session when Japan printed better-than-expected average earnings report at the same time when investors were concerned about weaker private earnings report from Uncle Sam.
But the tides turned halfway into the session when the BOJ offered to buy unlimited JGBs to curb its 10-year yields.
USD/JPY dipped to a session low of 113.10 before popping up to 113.64; EUR/JPY dropped to 129.17 before recovering to 129.70; GBP/JPY fell to 146.68 before shooting up to 147.36, and AUD/JPY slipped to 85.73 before rising back up to 86.17.
Watch Out For:
- 5:45 am GMT: Switzerland’s unemployment rate expected to remain at 3.2%
- 6:00 am GMT: German industrial production (0.2% expected, 0.8% previous)
- 6:45 am GMT: French government budget balance
- 6:45 am GMT: French industrial production (0.5% expected, -0.5% previous)
- 6:45 am GMT: French trade balance (-4.9B EUR expected, -5.5B EUR previous)
- 7:00 am GMT: Switzerland’s foreign currency reserves
- 7:30 am GMT: U.K. Halifax house price index (0.2% expected, 0.4% previous)
- 8:00 am GMT: Italy’s retail sales (0.3% expected, -0.1% previous)
- 8:30 am GMT: U.K. manufacturing production (0.5% expected, -0.2% previous)
- 8:30 am GMT: U.K. goods trade balance (-10.8B GBP expected, -10.4B GBP previous)
- 8:30 am GMT: U.K. industrial production (0.4% expected, 0.2% previous)
- 8:30 am GMT: U.K. construction output (0.6% expected, -1.6% previous)