Yen slides to a six year low on BOJ stimulus surprise

Friday, October 31, 2014

The Japanese yen slid to a six year low overnight, trading towards 111.40 after seeing intense selling pressure against the dollar throughout the entire Asian session. The 2.05% move was prompted by the Bank of Japan’s unexpected decision to increase monetary stimulus, expanding the monetary base by 80tn yen per year against expectations of a 70tn yen increase. Analysts had anticipated an increase in stimulus efforts by the BOJ was forthcoming; however, the increased support from the central bank comes at a time when the US Fed has brought its QE3 bond buying programme to an end which has seen an exaggerated move out of yen and into the US dollar. The yen faced further selling pressure after the GPIF, Japan’s government pension investment fund, sought approval to boost its stock allocation to 25%, increase its target allocation for foreign bonds to 15% and reduce domestic debt to 35%. Investors have been closely watching the changing GPIF allocation as the world’s biggest pension fund, with $1.2tn under management is seen as a bellwether for other large Japanese institutional investors. The Nikkei 225 and TOPIX indices both experienced strong buying activity overnight, rallying 4.8% and 4.2% respectively, with the Nikkei hitting a seven year high.

Three month LME nickel prices rallied above $16,000/tonne overnight on the BOJ’s unexpected announcement for more stimulus measures, adding 2.7% so far today as prices rose to a two week high above $16,170 early on. Nickel futures remain on track to close higher for a fourth consecutive session as the metal looks to add 8.0% this week, snapping a seven week bear run which saw prices steadily decline since early September when nickel reached $20,000/tonne. Three month aluminium prices also experienced firmer buying activity overnight, building on yesterday’s close as prices tested levels above $2,040/tonne.

OPEC members saw output rise to a 14 month high in October showing no signs of slowing down despite the recent bear run seen in crude oil futures. Data released by the 12 member group indicated production levels increased by 53,000 bpd to 30.974m bpd in October led by producers ramping up in Iraq, Saudi Arabia and Libya. The steadily increasing output comes at a time when global demand remains lacklustre and front month Brent futures are trading towards a four year low, currently around $85.60/bbl. EIA figures released earlier this week further confirmed the global supply glut as US stockpiles of crude oil increased 2m barrels w/w. With OPEC members showing no signs of backing down and curtailing production and with Saudi Arabia simultaneously cutting its export price to Asia we could see prices settle around a new normal as they attempt to capture more market share.

JPY trades above 111.00 against the dollar as BOJ expands monetary base

JPY Curncy Japanese Yen Spot 2014 10 31 07 23 03

LME 3-M nickel prices rally on stimulus measures

LMNIDS03 Comdty LME NICKEL 3 2014 10 31 07 43 34

Events for today

1000

EZ

Sep

Inflation

1230

US

Sep

PCE & Personal Income

1230

US

Q3

Employment

1345

US

Oct

Chicago PMI

1455

US

Oct

Michigan Survey

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