From Marc to Market:
Overview: The BOJ defied speculation and stuck to its current policy, which saw the yen sell-off sharply. The dollar rallied about 3.4 yen before falling back. The greenback is broadly lower against the other G10 currencies. However, for the fifth consecutive session, the euro has stalled around $1.0870. While UK headline inflation soften, mostly due to fuel, core prices were unchanged, and this may have helped sterling extend its recent gains to almost $1.2365. Softer US economic data (retail sales producer prices, and industrial production) pose headline risk in early North America, but rates seem to have made the adjustment last week, when the two-year note yield fell to almost 4.10%. It is around 4.18% now.
The weaker yen helped lift Japanese equities while most other Asia-Pacific bourses ended higher. Europe's Stoxx 600 recouped yesterday's early losses and is firmer today, as its advance extended into the sixth consecutive session. US futures are steady to slightly higher. Benchmark 10-year yields are mostly 2-4 bp lower in Europe, except for the UK, where sticky core inflation may have encouraged the underperformance of Gilts. The 10-year US Treasury yield is off 7 bp to almost 3.47%. The China recovery story, which is still capturing the market's imagination, is helping extend the rally in crude oil. February WTI is rising for its ninth consecutive session. Above $81.50 a barrel, it is at its best level since early December.Asia Pacific
The Bank of Japan stood pat. In a unanimous decision, the BOJ left its Yield Curve Control intact, sending the yen sharply lower. Japanese government bonds and stocks rallied. The 10-year JGB yield fell back top 0.40% from the 0.50% cap and the Nikkei rallied 2.5%. The BOJ will continue to buy bonds as needed. It will boost its loan facility to commercial banks to help fund their purchases of bonds too. Last Thursday and Friday, banks took about JPY4 trillion (~$30 bln). Governor Kuroda said he would not rule out offering the funds at a negative rate, i.e., paying the banks to buy government bonds. The BOJ itself spent about $75 bln buying bonds in the last two sessions of last week and bought about $23 bln more on Monday and Tuesday's operations.The BOJ updated its economic forecast. This fiscal year's CPI was tweaked to 3.0% from 2.9%. Next year's CPI was left steady at 1.6%, and the following year’s was raised to 1.8% from 1.6%. The takeaway is that the BOJ is signaling that it still does not expect the recent rise of inflation to be sustained. Growth forecasts were reduced. Growth this fiscal year, which ends in March, is now seen at 1,9% rather than 2.0%. Next year's growth forecast was pared to 1.7% from 1.9% and the following year to 1.1% from 1.5%. The next BOJ meeting is on March 9. It will be the last that Governor Kuroda chairs before retiring in early April.
The dollar spiked to almost JPY131.60 on the BOJ news. It had settled the North American session slightly above JPY128.10....
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