Article / 29 July 2016 at 7:00 GMT

Morning Markets: BoJ keeps calm, market carries on

Editor / Saxo Bank

Morning Markets: Prices


  • Japan: CPI, Employment, Household Spending (1930 GMT)
  • Japan: Industrial Production, Retail Trade (1950)
  • Bank of Japan Interest Rate Decision (2000) GMT
  • Euro area July Flash Consumer Price Index (0900)
  • Euro area Q2 Flash Gross Domestic Production (0900)
  • US Advance estimate Q2 Gross Domestic Production (1230)

In the end, it was the algorithms that had all the fun.

The Bank of Japan, as many are aware, is the only major central bank that does not set exact times for its policy releases, so the minutes leading up to the bank's official statement just before 0330 GMT were characterised by massive spreads, panicked jags, and unpredictable price movements. 

At 0301 GMT, two minutes after many news sites had the release scheduled, USDJPY plunged from 104.75 to 103.40; 16 minutes later, the pair made a test towards 105.00. 

When the news finally broke, USDJPY traded in a fantastical, 250-plus pip range in the space of a minute, breaking 105.50 on the upside and 103.00 on the downside. Ultimately, however, the trend is lower as the BoJ shocked markets by holding its policy balance rate at minus 1%, maintaining its monetary base target at ¥80 trillion, expanding ETF purchases to ¥6 trillion, and doubling its USD lending programme at $24 billion. 

BoJ governor Haruhiko Kuroda also called for an assessment of policy effectiveness at the central bank's next meeting, lending the morning's whole affair a hesitant and self-doubting air. 

After all, what could the BoJ have done to satisfy markets, or to somehow justify the volatility seen heading into the release? At the present moment, and over the past few years, it almost seems as if we have reached a point at which expectations for the scale and efficacy of central bank policy shifts have come to vastly exceed the possible scope of such actions. 

Before the release, when anxious Twitter users were grousing about the length of US presidential candidate Hillary Clinton's nomination speech in the apparent belief that it was holding back the report from Tokyo, USDJPY saw several 75-100 pip swings as traders both human and not tried to manage either their nerves or the binary equivalent. 

In short, markets appeared coiled for a Brexit-style, 1000-plus pip move in the yen this morning, but Japan's 134-year-old central bank was having none of it. 

Market signals

Asian session

  • Markets awaiting European bank stress test results due out at 2000 GMT
  • Japan's CPI fell 0.5% in June; deflationary thinking is weighing on growth
  • The BoJ has boosted USD lending and ETF purchases, but not bond buying
  • Shares lost mid-day ground in Tokyo on disappointment with the BoJ, rising yen
  • Nikkei 225 recovers from BoJ tumbles to close up 0.56%
  • Late-session rally puts S&P/ASX 200 0.10% in the green

Forex ahead

  • USDJPY trading around 103.50 after massive BoJ drop
  • Extreme volatility seen heading into BoJ statement, multiple 50-plus pip swings
  • Dollar/yen swings from above 105.50 to 102.70 on central bank news
  • EURUSD erases late-Thursday spike, trading around 110.80
  • AUDUSD rallies to 0.7550 before retracing
  • Aussie traders awaiting the RBA's August 2 monetary policy decision

From the Floor

Against the policy wall.We are seeing the Bank of Japan at its limits,” says Hardy

High-energy. "Chevron and Exxon report earnings today, and I expect them to beat," says Garnry

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1... 2... 3

Recent PMIs suggest that there was little immediate fallout from the Brexit vote on the outlook for the Eurozone, says Juhani Huopainen.

The worm in the Apple

Shares of Apple might have soared after the company defied too-negative expectations for its earnings report, but the company still faces severe structural headwinds says Peter Garnry.

Fed up

The US Federal Reserve has gone from cautious to ambiguous in its statements, and is now "passing the parcel" of uncertainty from its board to the market writes Neil Staines.

Negative on the yen

The USDJPY appears likely to put in a local bounce from support, but overall a move towards the 102.81 area could be on the cards for today says Steve Lucas.


Browsing, not buying ... Some retailers look busy, but the worrying reality is that deflationary thinking is constraining spending and growth in Japan. Photo: iStock

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