Steen Jakobsen
The Bank of Japan has abandoned quantitative easing and the European Central Bank may taper its bond-buying programme, so what is the role of central banks in 2017, asks Saxo Bank’s chief economist Steen Jakobsen.
Article / 27 July 2016 at 8:00 GMT

From the Floor: Stimulus talk hits JPY hard

Your Next Trade
  • Japanese stimulus speculation returns, sending JPY nearly 200 pips lower
  • Australian CPI beat sees AUD spike then retrace on likelihood of dovish RBA
  • Apple earnings come in ahead of expectations, but firm faces a difficult path
  • US retail sales, durable goods orders, FOMC out today

From the Floor By Michael McKenna 

Yesterday, it appeared that yen investors had just about decided that whatever stimulus package awaited them from prime minister Shinzo Abe's new government was priced in, and the JPY was oversold. Today, the pendulum swung the other way – and rather determinedly at that.

Reporting from Saxo Bank's Singapore trading desk, Global Sales director Christoffer Moltke-Leth tells us that a flurry of news reports placed the easing issue front-and-centre overnight, with the yen plunging by nearly two big figures against the US dollar as Japanese equities rocketing skywards, only to retrace to a still-strong 1.72% gain on the day.

"We saw Fuji News Network stating that Abe could introduce a ¥27 trillion package as soon as today, while Kyodo News was out speaking of a ¥28t package with cabinet approval expected next week," says Moltke-Leth.

"There are a lot of rumours out there," says Saxo's head of Global Sales, "including the contention that the package could only contain ¥3t in real spending with the remainder consisting of loans and lending subsidies".

Whatever the ultimate result, the reports replaced yesterday's rather diffident narrative with a strongly yen-negative perception of imminent easing that saw the Nikkei 225 gain 1.72% in value and the JPY lose nearly two big figures against the US dollar.

USDJPY spiked to 106.50 before retreating to around the 105.50 range ahead of the European open. 

There was also a report out from the Wall Street Journal stating that Japan could be set to issue a 50-year bond, but this was denied by the ministry of finance; whatever the truth, however, the headline spikes in USDJPY can clearly be seen on the chart.


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Source: Saxo Bank 

The other big story heading into today's session is Apple's earnings surprise, which saw the Cupertino-based firm beat expectations on EPS (1.42 versus 1.39 expected), revenues $42.4 billion versus 42.1bn expected) and Q4 guidance. 

These strong figures, however, must be weighed against the company's 27% drop in profits, which largely came on the back of flagging iPhone sales. According to the WSJ, we remain in the midst of the largest prolonged drop in iPhone sales since the product's introduction in 2007 as consumers – particularly in China – flock to lower-priced, Android-based competitors.

This largely reflects Saxo equities head Peter Garnry's view that the saturation of the smartphone market will continue to make it difficult for Apple's high-end and highly priced iPhone range to capture a wide swath of consumer interest,

Apple shares rose 5% in the after-market session, reports Garnry; "this shows that sentiment was too negative, but Apple still faces a tough road ahead".

The overnight session also saw some interesting price action on the part of the Australian dollar, which ticked up to just shy of the 0.76 handle versus the greenback before retracing to its present area around 0.7480, which largely marks the continuation of the extant downward trend.

"The bear trend is back," says Saxo Bank head of forex strategy John J Hardy. Investors likely interpeted the CPI surprise as pointing to a potential rate cut from the Reserve Bank of Australia, which is known to be seeking a lower AUD in general.

Today's session sees the Federal Open Market Committee out at 1800 GMT, as well as UK GDP estimates at 0830 GMT as well as retail sales and durable goods orders from the US.

Hardy tells us that expctations for any action from the Federal Reserve are low-to-nonexistent today, but recent days and weeks have seen the odds of a 2016 rate hike tick higher again after the disastrous May nonfarm payrolls release (as well as Britain's Brexit vote). 

At the moment, the chances for a hike in December sit at 49.2% (September sits at 20%); the reading does not show a 50%-plus figure until 2017.

Finally, we saw an active day in the fixed income market yesterday with new bonds announced from Vodafone, Ineos, and Heathrow, but even though the European Central Bank is a strong pontential buyer here, says Saxo bond trader Michael Boye, upside is likely limited for corporate bonds.

One pontential driver is news that Italy is seeking a private solution for troubled banking giant Monte dei Paschi, with Boye reporting that any headway here would be good news for the Eurozone as a whole.

Today's US earnings calendar features releases from Comcast, Coca-Cola, Mondelez, Altria, AmGen, Boeing, and Facebook.

USDJPY in focus
Volatility-seeking FX traders, meanwhile, are watching Japan's 
dovish government like hawks, Photo: iStock 

Michael McKenna is an editor at

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