BOJ is moving towards a recovery

21 December, 2016

US Dollar

The currency rose by 0.28% to 103.36 level, as BoJ kept the rates at a record-low level while Yellen’s speech fuelled hopes for an accelerated tightening in the next year. The EUR/USD cut through the 1.04 level trading near the support of 1.0380, while the British Pound declined below the 1.24 level.

Risk sentiments

German bonds fell to a two-week low on the tragedy in Berlin, where a truck rammed a crowd in the Christmas market. The current situation in Europe is tense, as there are concerns over the last steps of the recapitalization of the private Italian bank Monte dei Paschi. Italian government waits for the bailout plans approval from the parliament. The estimated cost is 20B Euro, in order to rescue local banks starting from Monte dei Paschi. Italian government bond yields rose 2.01% to 1,877.

BoJ meeting

The Bank of Japan left its monetary policy unchanged, improving the economic outlook and strengthening the market’s expectations. So that the regulators could go for an increase rather than a decrease in the interest rates. Reflecting the growing demand of the emerging markets in Asia, as well as industrial production, the central bank of Japan has signalled that the economy is moving to a sustainable recovery.

“The Japanese economy has maintained a moderate recovery trend,” – said the regulator.

However, the Bank of Japan warned that the impact of the US monetary policy on the global markets is one of the forecasted risk factors, suggesting that multiple Federal Reserve tightenings could have a negative impact on the capital flows in the emerging markets. The Bank of Japan, as expected left the policy rate unchanged at  -0.1% and kept the promise to keep the yields of 10-year bonds close to zero. Japanese Yen surged 0.66% to 117.90 level.

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