Sunday, November 2nd 2014
BOJ Shock and Awe
Happy Halloween! BOJ surprised the market on Friday with expanding their already massive QQE scheme. The board is split with Kuroda as the deciding vote in a 5-4 majority to increase the money printing program to 80 trillion Yen, up from 60-70 trillion per annum. In addition to that, Japanese Government Pension Investment Funds (GPIF) also shifted asset allocation to lower JGB from 60% to 35%, increase domestic stock holdings from 12% to 25% and they are now even buying up foreign stocks up to 25% of their allocation.
Nikkei soared about 1000 points after the announcement and closed around 5% higher to its highest level since around 2007. Stocks around the world also soared with S&P500 Futures reached an all time high. Japanese Yen tanked across the board with USD/JPY went up 3 handles from 109 to 112.
These two announcements were clearly choreographed to achieve maximum effect in combating several decades of deflation in the Japanese economy. BOJ cut its forecast for inflation and GDP growth for the year and they are now going to miss the 2% inflation target especially with oil price weighing on price around the world. This decision by Kuroda is certainly a surprise especially comes just days after the Federal Reserve actually completed their QE program in the US this month.
During the press conference, BOJ Governor Kuroda was clear in his message that the measure introduced this month should not be construed as “incremental” and he is willing to do everything to achieve the 2% inflation target.
What Now?
I think the biggest loser with this announcement is the European Union as ECB is still struggling to achieve their own inflation target. Unfortunately, the Euro has been battered because of the recent bad news coming out of the region. They are also set to enter a triple dip recession soon. Will Draghi be more dovish in their meeting this coming Thursday?
This week we are going to see a few more Central Banks decision and several high impact data so I expect further volatility.
- RBA Rate Decision (Monday evening)
- NZ Employment data (Tuesday afternoon)
- US Midterm Election (Tuesday all day)
- Australia Employment data (Wednesday evening)
- BOE Rate Decision (Thursday morning)
- ECB Rate Decision (Thursday morning)
- US NFP (Friday morning)
The Trades
I entered several “long JPY” trade this past week with a very small starter position. These pairs have all been stopped out for small losses. Managed to made it up with a daytrade shorting NZD/USD on Friday as shown above.
The Outlook
At this point, all bets are off, really. However, seeing that there is no Japanese data this coming week, we have to shift our focus to the other pairs. I am slightly bearish on AUD and NZD especially with their employment data this week. As far as GBP and EUR, I am not expecting any major surprises but Draghi might be a little bit more dovish as well. Since the rate in EU region is at record low, I don’t think they will lower it further to 0%.
US NFP can go either way but coupled with the midterm, this week might be unpredictable for the Dollar. I find it hard to believe that the NFP can beat 229k estimates but if they manage to pull a surprise and Draghi was more dovish then USD might be in for a move upwards.
It will be an exciting week again and I wish you the best of luck for your trades.
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