Japan Surprises

The Bank of Japan surprised everyone may lifting the 10-year yield curve cap to 0.50% from 0.25%.

The BOJ also said it would increase its bond purchases to JPY9 trillion (~$68 bln) a month compared to the current JPY7.3 trillion.  

BOJ Kuroda, whose term ends next April, insisted that the easy monetary policy stance will continue.  

The surprise decision sent ripples across the capital markets.  Japanese stocks slumped, with the Nikkei falling about 2.5%.  Global bond yields jumped.  They were already rising after the US-European surge yesterday.  The 10-eyar JGB rose 15 bp to 0.40%.  In early European trading yields, are up 7-10 bp.  Gilts continue to lead the adjustment and are up about 10 bp to 3.6%. 10-year US yield is up about 7.5 bp to 3.66%.   

The dollar dropped sharply against the yen. After settling near JPY137.00 yesterday, the dollar fell to almost JPY132.00.  The next important chart area is JPY130.00, the low from August and then JPY126.60 (~38.2% of the dollar’s rally since the March 2020 low).   

Quantitatively, sterling’s move at the end of September was larger.  The Bollinger Band is two standard deviations from the 20-day moving average.  Sterling moved four in the capital strike over Truss’s fiscal plans.  The lower Bollinger band for the dollar was near JPY133.45 today, and the three-standard deviation move would push about JPY131.70.  Four-standard deviation move would bring it to JPY130.  

The dollar is lower against the most of the other G10 currencies, but the Antipodean currencies are lagging (minor losses).   

 In line with the correlation work that shows the Chinese yuan moving directionally with the euro and yen, the yuan has strengthened, with the greenback falling from nearly CNY6.98 at the mainland close yesterday to CNY6.9610 today (so far).  The yuan snapped a three-day drift lower.   

Asian regional currencies, like the South Korean won and Philippine peso and Singapore dollar are firmer.  Most of the others slipped fractionally.   

Europe’s Stoxx 600 gapped lower but in early trading trying to close the gap.  It is off about 0.4%, as I write this quick note. US futures are also slightly lower.   

                 Gold jumped to $1805 from almost $1788 at the close yesterday (spot market).         

We have seen China pivot on Covid. After ratcheting expectations up through most of the year, the market has felt comfortable with the terminal Fed funds rate at 5.0% (=/-25 bp) for the better part of two months. The BOJ’s adjustment today marks the third big move.

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