BOJ extends record stimulus, JPY strengthens

Wednesday, January 21, 2015

The yen recovered most of yesterday’s losses against the dollar during overnight trading, strengthening briefly towards 117.30 before settling around 117.50 ahead of the European session as the Bank of Japan announced that it would be expanding its lending programme. The original loan programme, which was set to expire in March, offering 7 trillion yen is to be extended by one year and will see the growth supporting funding facility increase to 10 trillion yen ($85bn). Having given out 5.8 trillion yen in credit since the start of the programme up until December 5th, policymakers hope that the extension of both the lending facility and time horizon as well as the widening of eligibility criteria which has seen the central bank embark on record stimulus will reignite growth in the world’s third largest economy. However, with inflation forecasts cut to 1.0% for the year beginning in April from 1.7% forecast three months ago many market participants see the recent moves by the central bank as moving the goal posts further out.

Spot gold prices rallied to a five month high on Tuesday with prices surging 1.54% higher as the yellow metal found firm support around the previous session’s close. After briefly consolidating between $1,270-80/oz on Monday, spot prices experienced firm buying pressure throughout yesterday’s session, pushing the precious metal to a close just above $1,295/oz, the highest level since August last year. Investment demand for gold ETFs has seen holding in the SPDR Gold Trust ETF expand rapidly in the run up to tomorrow’s ECB meeting, to 742.24 tonnes yesterday from 707.82 tonnes the same time last week. With market participants expecting the ECB to announce a fresh round of asset purchases we could see further upside in spot gold prices with activity this morning pushing the yellow metal briefly above $1,300/oz for the first time since August 19th last year.

Three month LME zinc prices added 1.3% yesterday to end the session at $2,100/tonne as investors expressed quiet optimism ahead of today’s US housing data. Intraday price moves saw zinc rally towards $2,111/tonne with activity this morning seeing the metal trade firmly around these tentative levels of support. Market participants polled by Bloomberg expect US housing starts in December to have reached 1040K units from 1028K the previous month, an anticipated growth rate of 1.2% m/m compared to the previous month’s reading of -16% m/m. Zinc prices have rallied almost 5% since intraday spikes lower saw the metal trade briefly towards $2,000/tonne this time last week and any positive surprise in US housing data could provide the necessary catalyst for moves higher across the industrial metals complex.

JPY trades towards 117.50 against USD early on

JPY Curncy Japanese Yen Spot 2015 01 21 07 34 48

Spot gold prices and ETF holdings rally ahead of ECB meeting

GDTRGOLD Index SPDR Gold Trust 2015 01 21 07 46 27

3-M zinc prices extend gains ahead of US housing data

LMZSDS03 Comdty LME ZINC 3 2015 01 21 07 53 04

Events for today

0400

JP

Nov

Leading Index

0930

UK

Dec

Claimant Count

0930

UK

Nov

ILO Unemployment

1330

US

Dec

Housing starts

Topics: Gold, JPY, BoJ, LME, Zinc
More from: Kash Kamal