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Article / 27 July 2016 at 7:29 GMT

FX Update: Japan denies perpetual bond rumours, but JPY tumbles anyway

Head of FX Strategy / Saxo Bank
  • WSJ reports Japanese 50-year bonds are on the way, but officials deny
  • Australian CPI came in higher than expected
  • We expect the Fed want to head into September meeting with more flexibility 
japanese stimulus
A Japanese stimulus package is on the way and soon we should know how big it will be. Photo: iStock 

By John Hardy

Kyodo news overnight reported that Japanese prime minister Shinzo Abe plans to announce a stimulus package of “more than ¥28 trillion”, which is more than 5% of GDP. But the development that set the JPY to gyrating the most overnight was a WSJ story citing ministry of sinance sources that the government plans to issue 50-year bonds, which are just a step away from the effectively perpetual bonds that were discussed when former Fed chairman Bernanke visited Japan recently. 

Japanese officials roundly denied the story.

The Australian CPI release overnight was an interesting tell on the market sentiment around the AUD, as it was higher than expected for the “trimmed mean” or core measure at plus 0.4% quarter-on-quarter and plus 1.7% year-on-year and did send Australian short rates higher overnight, and yet the knee-jerk AUD rally was faded very aggressively. 

Note the technical comments in the AUDUSD chart below.

The FOMC statement release tonight comes amid rather tepid expectations. Our stance has been that the Fed would like a bit more flexibility heading into the September meeting because we have two monthly economic data cycles for July and August to process before that meeting and the Fed will want to avoid the impression of appearing to lean toward one or another presidential candidate.


If we manage to close near current levels in AUDUSD (solidly below 0.7500) or lower after the FOMC meeting tonight, the AUDUSD bears have a compelling case for a try at the next structural levels down around 0.7300.

Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more 

The G-10 rundown

USDUSD strength challenged yesterday, but the greenback has so far survived the test and as there are no expectations around this FOMC statement, it may be relatively easy for the USD to keep an even keel, particularly on any minor hawkish upgrade of the language in the statement.

EUREURUSD at 1.1000 has been extraordinarily sticky – still looking for a move lower, but need for USD strength to follow through soon.

JPY – a choppy Asian session for then yen as anticipation of the Friday BoJ picks up further – current levels of buying easily cover the new bond issuance required by Abe’s apparent new stimulus plans, but the BoJ won’t want to underwhelm the market – perhaps it can “pull an ECB” and suggest that something could be in the works for announcement at a future date to keep a lid on the JPY.

GBP sterling managed to shrug off yesterday’s developments rather easily, suggesting that positioning is making it more difficult for sterling to weaken, though the reversal lacked energy, so the trend remains the trend. The backdrop of JPY weakness and strong risk appetite is allays negative focus on sterling. The break levels for resuming sterling downside are well etched around 0.8425 in EURGBP and 1.3060 in GBPUSD.

CHFCHF interest picking up here after EURCHF rally and as USDCHF challenges toward parity, with all of the interesting technical implications there. Note the flat-line resistance level in USDCHF around 0.950 ahead of parity.

AUD – bearish that the very thing that should strengthen the AUD – a stronger than expected inflation print – failed to do so. Ugly action in Chinese markets on new regulatory moves may be at the root of some of the weakness.

CADUSDCAD rally hanging in there after a consolidation overnight, we need FOMC to confirm the late break above the 1.3188 level and weaker oil prices are providing plenty of pressure on CAD.

NZD – 0.7000 has remained a sticky area for NZDUSD, but the operating assumption is that we have seen an orderly consolidation/squeeze before taking out the key 0.6950/0.7000 zone post-FOMC.

SEK – Swedish Consumer and Manufacturing confidence survey data today doing SEK no favours and weak Swedish data through the end of this week could mean we test the cycle highs in EURSEK

NOK – the Scandies are out of favour and a further drop in oil prices could see EURNOK higher in the range above 9.45 to the cycle highs above 9.70.

Upcoming Economic Calendar Highlights (all times GMT)
  • Sweden Consumer/Manufacturing Confidence 
  • UK Q2 GDP Estimate (0830) 
  • UK Jul. CBI Retailing Reported Sales (1000) 
  • US Jun. Durable Goods Orders (1230) 
  • US FOMC Statement (1800) 

— Edited by Clemens Bomsdorf

John J Hardy is head of FX strategy at Saxo Bank


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