Yen continues Climbs Up – Volatility Alert 7/29/2016

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BOJ’s Fresh Easing Excludes Bond Purchase Program

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The yen surged as much as 2.5 percent versus the dollar after the Bank of Japan refrained from expanding the government bond purchases that have been the mainstay of its unprecedented monetary stimulus.

The Japanese currency advanced against all 31 of its major peers Friday after BOJ Governor Haruhiko Kuroda and his board increased purchases of exchange-traded funds to 6 trillion yen ($58 billion). They left bond buying at 80 trillion yen a year and maintained the minus 0.1 percent rate on some deposits at the central bank.

The yen was 1.5 percent higher at 103.73 per dollar at 7:25 a.m. in London, heading for the biggest gain since the June 24 aftermath of Britain’s vote to exit the European Union. Japanese benchmark bonds fell the most in eight years. “The BOJ decision failed to meet the market’s high expectations,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “Although Kuroda signaled that there could be more easing at the next meeting in September, overall this is a huge disappointment for markets.” Japan’s currency was as strong as 99.02 per dollar on June 24 in the immediate aftermath of the U.K.’s decision to leave the European Union, a level unseen since November 2013. It had retreated as far as 107.49 by July 21 as expectations built for monetary and fiscal stimulus in the Asian nation.

Policy Review

Kuroda ordered an assessment of the effectiveness of BOJ policy, to be undertaken at the next meeting of the monetary policy board, which is scheduled for September. The central bank also doubled the size of a U.S. dollar lending program.
“Looks like Kuroda has had to accede to his internal MPB critics by ordering this policy effectiveness assessment,” said Cliff Tan, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in Hong Kong. “It makes you wonder how effective fiscal policy is going to be if BOJ refuses to play ball.”
He said 100 is looking more realistic over time now.
Kuroda will speak to reporters from 3:30 p.m. Tokyo time. 
“The focus will now turn to whether Kuroda can sustain expectations for more easing through communication at his presser,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd.