BOJ Adopts Aggressive Monetary Measures, Yen Dives Broadly - 4.4.2013

The USDJPY reacted sharply and advanced by 2.87% surging to 95.38 from 92.80, immediately after BOJ aggressive monetary announcement. The BOJ on Thursday morning initiated a new program called “Quantitative and Qualitative Monetary Easing” to achieve 2% inflation in 2 years’ time. Holdings of Japanese Government Bonds (JGBs) and ETFs will be doubled as well as purchases of JGBs will include all maturities, increasing average maturity to seven years to bring down interest rates. In addition money market operations will increase monetary base by 60-70 tln yen per year. Aggressive upside move would most likely followed by correction/consolidtion due to profit taking, following increased volatility period we expect prices to retest more than 3 ½ year high at 96.12. EURJPY also gained ground sharply after the BOJ release soaring as high as 122.59 while NIKKEI 225 index was well supported by enhanced monetary policy gaining 2.01% and rising to 12,610.07. The Euro against other currency pairs trades steadily ahead of ECB decision, where no change in monetary policy is expected. EURUSD is fluctuating around 1.2840 while the EURGBP increased to 0.8500 from 0.8490 as of writing. Sterling is vulnerable as inflation risks increase, despite that BOE Governor is likely to support increase of asset purchases by £25 bln the asset purchase size is expected to remain at £375bln, like in February and March meetings. AUDUSD moved as high as 1.0488 on higher than projected Building Approvals and largest than expected increase of Retail Sales, however later on collapsed to 1.0421 partly due to growing tension between North and South Korea weighing on risk sentiment.