Yen slides against USD on surprise BOJ negative rates

Friday, January 29, 2016

The Japanese yen weakened significantly overnight against the dollar, losing ground to the greenback for the fourth straight session and trading back towards the 200 day moving average around 121.50 at one point, after the Bank of Japan surprised market participants with additional monetary easing. Investors were caught off guard as the safe haven currency traded 1.4% lower against the USD at the time of writing after the central bankers announced negative interest rates of -0.1% while maintaining its asset purchase programme.

Japanese bond yields dropped sharply on the announcement with ten year government bond yields dropping to a record low of 0.100% from a high of 0.230%.  The move to penalise reserves held with the central bank with a negative interest rate is yet another attempt to spur growth in the ailing Japanese economy as persistently low inflation depresses the outlook for the Japanese economy. Policymakers will likely look to additional measures to weaken the yen in a bid to make exports more competitive, taking a page out of the ECB’s book with regard to negative deposit rates, however, only time will tell if this policy will prove successful.

Today’s session sees the release of US Q4 GDP data and investors are hoping that the advanced reading for the final quarter of last year will offer some stability and encouragement to risk appetite. Economists polled by Bloomberg expect a 0.8% q/q growth rate in Q4 as well as continued stability in employment costs which are expected to increase by 0.6% q/q. Personal consumption is anticipated to be lower than the previous quarter at 1.8% q/q from 3.0% q/q and with early release retail sales suggesting a modest end to the year, many investors anticipate increased volatility in equity markets. The VIX gauge of volatility on the S&P 500 has stabilised around 22.50 in recent sessions and despite coming off the highs towards 28.00 seen earlier this month the index remains elevated compared to the Q4 2015 average of 17.15.  

JPY posts sharp losses against USD

JPY Curncy Japanese Yen Spot 2016 01 29 07 58 24

US Q4 GDP expected to be weaker Q/Q

GDP CQOQ Index GDP US Chained 2 2016 01 29 08 12 38

Volatility in US equity markets remains elevated 

SPX Index SP 500 Index SPVIX 2016 01 29 08 15 58

Events for today

0000

JP

Jan

BOJ Meeting

0005

UK

Jan

GfK Consumer Confidence

1330

US

Q4

GDP

1330

US

Q4

Personal Consumption

1445

US

Jan

Chicago PMI

1500

US

Jan

University of Michigan Sentiment

FN:

Mar  Brent Crude (ICE) 

Topics: GDP, JPY, BoJ, Yields
More from: Kash Kamal