BoJ Announces New ETF Purchases, Oil Eyed

With only a week until Christmas, we might ordinarily expect markets to go into holiday mode but that is certainly not the case at the moment, thanks primarily to some very active central banks and some interesting activity in oil.

Of course, much of the talk over the last week has centred around the U.S. Federal Reserve and its decision to hike interest rates for the first time in almost a decade, on Wednesday. But another central bank was also active overnight, although as it turns out the surprising measures it announced were not only unexpected, they bordered on irrelevant.

The Bank of Japan announced overnight that it plans to purchase 300 billion yen of ETF’s annually that contain stocks issued by firms investing in CAPEX and human resources. Alongside this, the BoJ decided extend the average duration of Japanese Government Bond purchases to 7-12 years, from 7-10, as of next year.

Initially, this appeared to be an surprising addition to the current stimulus measures and the yen slid against the dollar, while the Nikkei rallied in response to the news, but these moves were short-lived. In reality, the measures were negligible, especially as the ETF purchases came alongside a commitment to sell stock it has purchased since 2002, also at a rate of 300 billion yen per year, creating zero net purchases. The only marginal boost comes from the kind of stocks the BoJ is now targeting, but again, this is negligible. Moreover, the 300 billion yen in purchases comes on top of its 3 trillion yen of ETF purchases and 80 trillion yen of asset purchases under its QQE program. So, hardly anything to write home about.

Oil appears likely to remain quite volatile into the end of the year and we could even see new 2015 lows being made in that time, with Brent currently languishing around the $36.33 lows from earlier this week. A break of $36.20 would see Brent trading at its lowest levels since July 2004 and could prompt a move back towards $33-34, which was key last time it was trading around these levels.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.