CIBC
FX Flows
A messy session for the Japanese YEN. $YEN rallied ahead of BoJ announcement. One newswire reported strong onshore demand partly linked to the Tokyo fix. BoJ left everything unchanged, repeated to keep buying 10-year JGB at 0.25% every business day. $YEN jumped to 134.64! One headline that BoJ said is need to pay attention to currencies and markets. Then $YEN fell to 132.42! What was that? No one knows, could that have been a price check? The swing has left many wounded. Yesterday’s low was 131.50, there is a support line at 131.35. Strikes at 134.00 will come into play next few days.
EUR$ traded lower as the $YEN advanced. Intraday resistance comes in at 1.0615. Bids should appear near 1.0500 where option strike due today for €1.3bn. Story in the Financial Times that the German Finance Minister Christian Lindner has challenged ECB President over bond market fragmentation, said he did not see any particular hazards.
Commodity currencies were left one the side line today. Overall these currencies were weaker against the US$ amid higher $YEN. Large strike in AU$ at 0.7000 dues next week total A$1.7bn.
Citi
European Open
The BoJ surprised markets by holding all policy settings unchanged and maintaining 10y bond purchases at 0.25%. This sent USDJPY sharply higher with markets expecting some form of change from the BoJ, with the immediate aftermath seeing immense volatility. Dollar found a bid in Asia, while GBP and SNB, which saw rate decisions yesterday losing some ground. Treasury yields popped higher. Aussie rates markets saw a bear steepening move after one buyer takes down the whole 10y auction. US stock futures bounced slightly higher after yesterday’s losses as well.
Looking ahead, all eyes are on BoJ Governor Kuroda’s presser at 07:30 BST as traders look for guidance on policy. GBP sees retail sales data while USD will await Powell’s second appearance of the week.
Lastly, we flag that the US and Columbia will be on holiday on Monday.
What happened in markets?
FX: JPY is down sharply at -1.37%, on the back of the dovish BoJ decision, which we detail below. Dollar found a bid after the NY session’s sell off, with BBDXY up 0.45%. GBP, CHF and AUD were down 0.45%, 0.34% and 0.33% respectively.
Stocks also reversed their decline in Asia, with Nasdaq100 futures up 1% and S&P eminis up 0.89%.
Rates: UST yields have popped higher by 5-6bps across the curve. Our trader Hideyuki Liu notes that treasuries were mostly well behaved for much of today's Tokyo session, with the market heading towards the London open near the highs as BOJ decided to make no changes to its policy in today's much-watched meeting. As such, JGBs have rallied in the afternoon and have helped sustain a bid in treasuries too. Flows have seen better selling on net, though activity has been reduced relative to the other days this week.
BoJ’s decision
The BoJ disappointed today by keeping all policy settings unchanged. Key points, courtesy of CitiFX Wire’s Stephen Spratt:
–The vote on yield curve control vote is 8-1 (same as in April)
–Policy balance rate is held at -0.1%
–Maintain language that 10y yields will remain around 0%
–Sticks with daily purchases of 10y at 0.25%
–The statement also adds a rare mention on currencies stating “it is necessary to pay attention to developments in financial and foreign exchange markets and their impact on Japan’s activity and prices”.
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