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BoJ’s comments turn Yen stronger

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The Japanese Yen turned around during early European trading session as BoJ officials came out strongly (and rather unexpectedly) against the weaker Yen. The most notable comments was that the Japanese Central Bank announced a halt to any further easing stating that more Yen weakness could hurt consumer sentiment. Specifically the Bank of Japan said that any further easing would prove to be counter-productive for now, which saw a sharp rally in the Yen.

The Yen rallied across the board on the comments.

USDJPY down -1.15%

AUDJPY down -1.59%

CADJPY down -0.83%

EURJPY down -1.08%

NZDJPY down -1.3%

Nikkei225 down -1%

at the time of writing.

The comments from the BoJ have yet again surprised the markets and come as a stark reminder of the Central Bank’s influence in the currency markets. It was only in January earlier this year that the SNB shocked the markets by abandoning the EURCHF peg which they previously vehemently supported until a few days before breaking the peg.

The same story has also played out with the Bank of Japan, which in its January monetary policy pledged to maintain its stimulus program in a bid to target the BoJ’s 2% inflation target. Economists were expecting to see a fresh round of stimulus expansion sometime later in March this year considering that across the board, fuelled by low inflation Central Banks had embarked on cutting interest rates, such as the Bank of Canada and the RBA, while the RBNZ opted to keep interest rates on hold for the near term.

The volatility from the JPY crosses was also felt in the majors with EURUSD spiking towards 1.1349, while the GBPUSD spiked towards 1.525. The Aussie dollar managed to turn around from its session lows, rising as high as 0.768, while the NZDUSD spiked in both directions setting a new intraday low to 0.7314, but still below its intraday highs.

Gold futures also managed to rally on the news, rising briefly to 1230 levels but remains heavy to the downside, indicating a probable decline continuing for the rest of the trading session.

Crude oil futures was the commodity that managed to chug along unaffected, after it reversed from the interim support level at 49.69 on the Crude Oil inventories report released yesterday.

Expect further volatility to continue in the European session as the BoE’s inflation report gets underway shortly where Governor, Mark Carney will present the BoE’s views on short term and long term inflation expectations. Markets have currently priced in a rate hike in 2016, but this could change depending on today’s inflation report hearing. Considering that Crude oil has managed to rebound from its lows and is now expected to push higher towards the $53 handle, it should help put inflation back on track for most economies at least from March onwards.

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