Chart created using Marketscope 2.0 (USD/JPY 1 Minute)
THE TAKEAWAY:Yen volatile but higher as BoJ acts largely as expected announcing a large asset purchasing scheme and adopting a 2% inflation target.
The Bank of Japan today announced what the market largely expected which was an open ended asset purchasing program. This was coupled with an adoption of the 2% inflation target which Japanese Prime Minister Shinzo Abe had been encouraging in the recent weeks.
It was announced that from January 2014, the Bank of Japan would buy approximately 10 trillion Yen of T-Bills monthly in an effort to get Japan out of deflation. The doubling of the inflation target could change consumer sentiment and encourage more spending as the country battles a recession.
This news led to an initial sell off in the Yen as market expectations were confirmed, however the Yen started to strengthen as markets began to digest the news. In the weeks leading up to the Bank of Japan’s meeting, the markets forced the Yen weaker by approximately 12% as Shinzo Abe made forceful statements outlining his plan to see Japan out of deflation. This meant that when the announcement was finally made in line with expectations, the Yen may not have been able to see lower levels as there was no catalyst for it to do so.