Week in FX Asia – BoJ Drags USD/JPY Screaming Higher

The market fear was that the new governor at the BoJ would not be tough enough starting out at his first monetary policy meeting this week. Many had expected him to ease his way into his new role. However, Governor Kuroda has a different agenda – he is not holding back and has come out of the Central Bank gates swinging.

Kuroda is kicking off his inaugural two-year term with an aggressive new easing program designed to combat more than 15-years of deflation in the world’s third-largest economy. The key measures of the BoJ’s “Quantitative and Qualitative Monetary Easing” program include a doubling of bond purchases to 7-trillion yen (US$75b) a month and an expansion of purchases of other assets, including exchange traded funds and real-estate investment trusts. The central bank will end up buying more that +70% of newly issued debt – thereby removing a lot of supply from the market.

The pledge of aggressive buying has caused Japanese Government Bonds (JGB) to rally violently and flatten their yield curve. The market consensus believes that the aggressive shift in BoJ policy is likely to significantly affect the “traditional dollar dynamics.” With this in mind, the current downside risk in USD/JPY is likely to be very limited, as the Japanese domestic investors will likely view any data-driven dollar dip as an excuse to add to market long positions.

The fact that USD/JPY is holding its own after a much weaker payroll print speaks volume for a determined new BoJ. The markets magic number for USD/JPY seems to be 100 and this market is determined to get there in a hurry.



* JPY Current Account
* GBP Manufacturing Production
* CAD Building Permits
* USD FOMC Meeting Minutes
* AUD Employment Change
* USD Unemployment Claims
* USD Core Retail Sales
* USD Bernanke Speaks

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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