Kuroda is big in Japan; Super Mario in Europe?


The Japanese Yen weakened by almost three big figures overnight after the Bank of Japan announced some major changes at the first meeting conducted by new BOJ governor Kuroda. The BOJ issued a statement that it will “conduct money market operations so that the monetary base will increase at an annual rate of JPY 60 trillion to JPY 70 trillion”.

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Additionally, the BOJ will combine their two bond buying programs to buy JGBs with maturities of up to 40 years. The BOJ also said it will use open ended asset purchases and will buy JPY 7 trillion in long term JGBs per month and bond holdings will rise to JPY 50 trillion annually. Most analysts expected the BOJ to purchase JPY 5.2 trillion per month.

All of this news from the BOJ had been expected to occur at a later date, so the surprise to the market set currency traders scurrying to sell JPY as quickly as possible. The BOJ has given a strong direction to the market and many feel the currency will continue to weaken. The USD/JPY rose to a high just below the resistance level at 95.70 and is currently trading near the 95.50 level.

The initial target for the USD/JPY is now the 96.70 level. A move towards this level will certainly revive talk of the 100.00 level for USD/JPY sooner rather than later.

Shifting our attention to Europe, the Bank of England and the European Central Bank will meet and while neither institution is expected to move their rates, the comments following the meetings will be keenly watched. Most expect the BOE to keep their asset purchase program at GBP 375 billion, though some analysts would not be too surprised if the Bank added an additional GBP 25 billion.

The EUR had been rather quiet in Asian trading moving from 1.2850 to 1.2830, but the release of March PMI data throughout the region has seen the single currency fall through support at 1.2800. French and German PMI fell more than expected. French PMI was expected to fall from 43.7 to 41.9 but actually fell to 41.3. German PMI was expected to fall from 54.7 to 51.6, but actually fell to 50.9. EMU PMI also fell below consensus to 46.4 from 47.9. The consensus had been for a fall to 46.5. Both Spanish and Italian PMI date actually should a surprising slight upward move.

All of this sets the stage for the ECB meeting and ECB President Draghi press conference later this morning. He will certainly address the Cyprus situation, the poor performance of the Eurozone economy, as well as the possibility of rate cuts down the road. His tone as has been the case over the last few months will direct the move of the EUR. A negative tone should see the EUR quickly test the 1.2750 support level.

In the US, the ADP report yesterday came out lower than expected prompting some analysts to re-assess their thoughts on US Non-Farm payroll which will be released on Friday. More on that later today and tomorrow morning.

Further reading: 5 Most Predictable Currency Pairs – Q2 2013

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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