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Yen volatile as Japan prepares stimulus plans

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Image by The White House / Flickr

The volatility in the yen crosses ticked higher this morning with fresh reports from various news agencies in Japan carrying articles on various forms of stimulus spending from the government. While there has been no “official confirmation” yet (at the time of writing), the JPY crosses have been experiencing a wild ride already.

JPY Crosses - Daily Performance (0600 GMT, 27/07)
JPY Crosses – Daily Performance (0600 GMT, 27/07)

After sliding to 103.994 yesterday, USDJPY spiked higher to test 106 this morning after first reports poured out that Japan was considering issuing 50-year bonds for the first time, which led many betting on some form of helicopter money into a frenzy. “I don’t think the issuance of JGBs with longer duration alone can be interpreted as helicopter money. But it’s highly possible that such an impression will gradually strengthen,” Masahiro Ichikawa from Sumitomo Mitsui Asset Management said In the context that the BoJ could buy the debt later as part of its stimulus plans.

USDJPY spiked higher on the news, which also saw some news outlets reporting that Prime Minister Abe would announce a 27 trillion yen stimulus package later today. Considering that the stimulus package was higher than what was priced in, USDJPY jumped nearly 90 pips on the news before paring gains.

The reports suggest that Abe will propose improved wages for child and healthcare workers and will introduce needs-based scholarships for college students. Up until now, the markets were expecting to see a stimulus package in the size of 6 – 10 trillion yen, and the reports of Abe’s 28 trillion yen sent the yen tumbling. The Nikkei225 average surged 2.32% today

Shingo Ide from NLI Research Institute said, “Expectations are growing the Bank of Japan will also move [Friday] if the government announces an economic package.”

The Bank of Japan will be meeting this Friday, and the markets remain mixed but optimistic that the BoJ and the government would do more. Abe had previously promised more stimulus measures after winning the upper house elections and as per initial reports, further details are expected to come out next week, on August 2nd.

USDJPY stabilized after a few failed attempts to break out above 106 handle. The markets are likely to digest the news from Japan while gearing up for the FOMC rate statement due later today.

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