Japanese Inaction Spurs Yen Soaring

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A lack of fresh stimulus from the Bank of Japan sent the yen soaring and world stocks into the red on Thursday, half a day after the U.S. Federal Reserve signalled it too was hitting the policy pause button.

The yen surged almost 3 percent against both the dollar and the euro in a sharp reaction to the Bank of Japan’s (BOJ) inaction, putting it on course for its biggest jump against the greenback since February and in five years against the euro.

Tokyo’s Nikkei <.n225> had slumped 3.6 percent by the time it closed and the pan-European FTS Euro first 300 dropped 0.6 percent. Disappointing earnings from plane maker Airbus and Spain’s second biggest bank BBVA added to the gloom.

The BOJ’s decision to hold down-the-line in the face of soft global demand and a rise in the yen was particularly jarring for markets after media reports ahead of the meeting said it wanted to go deeper into negative interest rates.

On the key element of the speculation, applying sub-zero rates to the BOJ’s main bank lending program, governor Haruhiko Kuroda spelled it out clearly: “I know such a program is adopted by the ECB (European Central Bank) … At this stage, we don’t have any plans to consider this option.”

In Societe Generale FX strategist Alvin Tan’s opinion, “the market was expecting something from the BOJ and they did not deliver so the market has basically wiped out the entire rally in dollar/yen of the last couple of weeks; for the last 2-3 years the big theme in the market was monetary divergence. But in the last few months the legs have really been cut off that… so currencies are all over the place.”

 

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