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Dollar Soars to 6-year High on Bank of Japan Easing

David Becker
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Dollar Soars to 6-year High on Bank of Japan Easing

The USDJPY hit a fresh 6-year high following a surprise ease in monetary policy by the Bank of Japan and the stronger than expected US GDP. Additionally, the Japanese jobless rate continued to increase while deflationary pressures fell.

The yen tumbled after the BoJ surprised market participants with new monetary easing, which saw USD-JPY spike a six-year peak of 111.75. The BoJ announcement of an expansion in its quantitative easing program, by a vote of 5-4, came as a complete shock to markets. The move pushed the Nikkei stock index up by nearly 5% and the 10-year JGB fell to the lowest levels seen since April 2013 of 0.435%.

The central bank is now targeting an annual pace of expansion in the monetary base of about 80 trillion JPY, up about 10 to 20 trillion from the prior amount of 67-70 trillion yen. This will extend the average remaining maturity by about 3 years maximum to about 7- to 10-years. The BoJ also announced it will increase its purchases of ETFs and J-REITs.

Japan’s jobless rate rose to 3.6% in September from 3.5% in August, in line with median forecasts, while the job/applications ratio sank to 1.09 from 1.10 the first time since May 2011, suggesting some shrinkage in labor market momentum. Japan’s core CPI slowed to a 3.0% year over year pace in September from a 3.1% growth rate in August, matching projections. Total CPI moderated to a 3.2% year over year pace from 3.3% in August, also as expected. The Tokyo CPI slowed to a 2.5% year over year rate in October from 2.8% in September. The annual Tokyo core CPI growth rate slowed to 2.5% in October from 2.6%.

The USDJPY soared slicing through resistance, on strong momentum. The MACD (moving average convergence index) generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

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