Yen skyrockets after BoJ stood pat

June 16, 2016

No easing, no Yen relief. This is the message markets are trying to send the BoJ after the central bank refrained from easing monetary policy. Deposit rate remained at -0.1% and the annual pace of its asset purchase program was held at ¥80 trillion. Although the decision was widely anticipated by markets, some believed that BoJ could probably surprise, if not through lowering deposit rates then through increasing its scale of purchasing ETF’s or JGB’s. USDJPY broke immediately below two key support levels of 105.52 (May Low) and psychological support of 105 to trade at lowest level since September 2014. With lot of pessimism in markets, 100 level could be next on traders’ radars.

Soft labor market and uncertainty over UK’s referendum on June 23 has kept the Federal Reserve on hold for the fourth meeting in a row. The most watched dot plot used by the Fed to provide projections on interest rates path continued to see it’s dots slipping down, and although the door was kept opened for a rate increase in next meeting, the cautious speech by Chair Janet Yellen pulled back markets expectation for July hike to 7% and less than 30% chance for September. All in all, the meeting was more dovish than what markets anticipated.  

Here’s the key takeaways from the Fed’s meeting:

The dovish stance prompted bond rally and USD selloff, meanwhile it seems only a matter of days until yields on 10 year notes test a new record low. Two major factors could provide another leg to the bond rally, one is flight to safety in such an uncertain time, and the other is no attractive alternative with $10 trillion of worldwide bonds’ yields in negative territory. 

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