Bailout in Brussels to help the BoJ

The BoJ became the latest G8 central bank to ease policy this week. Governor Shirakawa and his policy makers announced a +Y10t increase in their asset-purchases and at the same time, formalized their inflation objective (an approach to fighting deflation). They intend to buy JGB’s with the new funds. The market risk is that the MoF follows this move with more aggressive intervention, normally this would be associated with the BOJ’s new policy stance. However, the MoF should be breathing a tad easier on the back of stronger US data which has the JPY under pressure outright, and on the crosses.

Taking into account the new BoJ emphasis on inflation, combined with the improvement in global equities this year, and the continued deterioration in Japanese trade dynamics, has many analysts revising higher their medium and long term dollar targets. If Monday’s ‘bailout in Brussels’ transpires, North American Yen Bears should be enjoying President’s Day that bit more!

Below are some other highlights of the week:


  • JPY: Finance Minister Azumi and Prime Minister Noda stress that Japan does not target specific levels of dollar yen. The comments follow references to specific levels by Azumi in parliamentary testimony.
  • JPY: Japanese GDP shrank an annualized -2.3% in Q4 after a revised +7% expansion in Q3. This was weaker than the -1.3% consensus. Analysts are optimistic for growth for Q1given the improved outlook for the US economy and the rebound in domestic production after the Thai floods.
  • CNY: It’s believed that China’s policymakers have told its banks to roll over loans to local governments. This reduces the risk of a hard landing in China, with banks extending maturities for local governments to avoid a wave of defaults.
  • AUD: Australia reported the number of home loans rose more than expected, +2.3%, m/m in December, up from +1.8% in November. This is the highest rise in seven months. The value of loans rose +2% while the number of loans for investment lending rose +7.5%.
  • JPY: The BoJ unexpectedly announced a +JPY10t expansion in its asset-purchase program to +JPY65t.They intend to buy JGBs with the new funds and have also made more formal its medium-term CPI goal of inflation below +2%, centered on +1% (an aggressive approach to fighting deflation, further reducing the scope for USDJPY downside). The overnight lending rate was maintained at 0-0.1%.
  • NZD: Kiwi REINZ house price index fell -1.4% last month following a -0.1% fall in December. On a year-on-year basis, house prices rose +4.3% and price levels appeared to have stabilized post the 2010 fall. Transaction volume also rose +25%, y/y. The futures market expects the RBNZ to keep rates on hold for the remainder of the year; recent Kiwi appreciation has also reduced the need for normalization.
  • INR: Indian inflation was lower than expected. WPI inflation fell to +6.6%, y/y, in January from +7.5% in December. It’s the lowest level in three-years and strengthens expectations for further RBI rate cuts. This would increase support of foreign inflows into Indian equities, and demand for the currency.
  • CNY: China again has pledged her support for the beleaguered European union and plans to invest in Europe’s bailout funds. PBoC governor Zhou said that the share of EUR in China’s reserves has not fallen and that China wants the single currency to play a larger role as a reserve currency. However, Chinese policy makers are waiting for the appropriate time to invest and that time is when European officials can produce innovative instruments with better return profiles.
  • AUD: Down-under, Westpac consumer confidence index rose +4.2%, m/m, this month to 101.1, the second straight increase after a +2.4% rise in January. New motor vehicles sales advanced +1.3%, m/m in January, the largest increase in five-months.
  • NZD: Kiwi retail sales volumes grew more than expected in Q4, rising by +2.2%, q/q (sa), after a revised +2.4% increase in Q3.
  • SGD: Singapore’s headline retail sales rose +4.2%, y/y in December, much weaker than the consensus forecast of +5.2%. This was due to a weakness in car sales, ex-auto retail sales grew much stronger than expected at +8.1%, y/y, from +6.4% in November.
  • SGD: South Korea’s import prices rose +7.9%, y/y in January, accelerating from a +7.1% gain in December. Export prices increased +4.6%.
  • AUD: Aussie employment report came in well above the consensus forecast, rising an impressive +46.3k last month. The participation rate rose to 65.3 from 65.2 and the unemployment rate fell to +5.1% from +5.2%. The stronger headline and better unemployment rate should keep the RBA on the sideline next month.
  • NZD: Kiwi Business PMI and consumer confidence both fell in January to 50.5 and 113.3 respectively. Analysts believe weaker domestic growth momentum should keep Governor Bollard and his policy member’s happy with current policy settings.
  • SGD: Singapore’s final Q4 GDP revised up to -2.5%, q/q, from the -4.9% advance earlier estimated. Analysts expect the MAS to maintain the SGD NEER on its current gradual appreciation path.
  • CNY: CNY: In the PBoC’s Q4 monetary policy report, members mentioned inflation risk while expressing concern over growth. Are they managing market expectations for monetary easing?






  • North America has a shortened trading week with President’s Day in the US
  • Down-under gives us Monetary Policy minutes in AUD and PPI in NZD
  • CNY provides us with flash Manufacturing PMI
  • GBP delivers public sector borrowing MPC minutes and revised GDP
  • CAD has core-retail sales and USD new and existing home sales
  • EUR is light with German ifo Business climate


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell