Finally, as suggested in our previous updates that the Bank of
Japan did ease policy by increasing the amount of its Asset Purchase
Program and the MOF also took this chance as indicated in our updates to
intervene the forex market to curb recent yen's strength. The Bank of
Japan increased purchasing assets (including JGBs, Treasury discount
bills, CPs, corp bonds, ETSs, REITS and fix-rate lending operations) by
10 trillion yen to 50 trillion yen, the amount was well above previous
raise of 5 trillion yen back in March after the 9.0 earthquake and
tsunami. Although the BOJ left its call rate target unchanged at 0-0.1%
unanimously, all council members agreed to temper the yen's rise to
avoid further damage to the country's export-led economy. The MOF
ordered BOJ to intervene the FX market on its behalf and the BOJ sold
yen very aggressively from around 77.00-10, pushed the USD/JPY sharply
higher to as high as 79.41 so far, lots of stops were triggered,
including 77.50, 78.10, 78.50 and also 79.00. Although some traders
reported offers from exporters at 79.50, dealers expect the Bank of
Japan to act again in European session with next batch of stops tipped
at 80.00-10. Japan's Finance Minister Yoshihiko Noda confirmed about the
intervention in the forex market, he said the action was conducted by
Japan itself but the MOF had communicated with other countries on the
move. Whilst Noda did not provide further details on the yen selling
intervention, source from Japanese news agency suggested that Japanese
authorities spent around 800-900 billion yen (approx. over US$ 11
billion) this morning in Tokyo which pressed the Japanese currency lower
by over 2.7%. The record amount that Japanese authorities used for
intervention is 2.1 trillion yen back in September last year, BOJ
governor Shirakawa will hold press conference from 07:00GMT and further
details would be unveiled.
EUR/JPY also rallied in Tokyo, easily broke above yesterday's high of
110.61 to as high as 113.35, tough offers at 112.00 and 113.00 were all
cleared, however, the pair's upside was limited partly due to the
weakness in the single currency. Euro retreated quite sharply after
hitting an intra-day high of 1.4375 (stop-hunting to trigger stops at
1.4350), surging Italian and Spanish bond yields put pressure on euro,
more and more investors started losing faith on Italian economy and
expected the nation to face debt crisis following Greece. However,
downside is likely to be limited as some traders await the rate decision
by European Central Bank later today at 11:45GMT and more importantly
the press conference at 12:30GMT as the ECB is expected to keep rate
unchanged but investors hoped the ECB could unveil aggressive measures
to address the eurozone debt crisis such as the resumption of bond
purchases in the secondary market. If ECB President Trichet does sound
less hawkish as before and focus on monetary easing approaches like bond
purchases, this would put extra burden on the single currency. At the
moment, some bids are reported at 1.4260-70 with stops placed below
1.4250 and further out at 1.4200 whilst on the upside, offers are still
noted at 1.4375/80 and 1.4400.
The British pound followed euro and fall in Aisa mainly on dollar's
broad-based rally, slipped from Australia high of 1.6440 to as low as
1.6343, although cable found some support there and has recovered,
consolidation should take place ahead of the Bank of England rate
decision at 11:00GMT with markets expected the BOE to keep rate
unchanged at 0.5% and asset purchase funds will stay on hold at GBP 200
billion. With speculations on possible QE3 in the U.S. and more debt
crisis in eurozone, sterling could benefit from current atmosphere and
trade with a relatively firm tone especially against the yen. We heard
bids from Asian sovereign names around 1.6340-50 and also 1.6300 with
some stops seen at 1.6270 and 1.6220 whilst on the upside, first offers
are tipped at 1.6400 and sizeable selling interest remains at 1.6440-50.
USD/JPY Daily Outlook
Daily Pivots: (S1) 76.76; (P) 77.08; (R1) 77.38;
USD/JPY's rebound from 76.28 accelerates further on Japan
intervention and the break of 78.46 resistance indicates that a short
term bottom is at least formed after USD/JPY missed 100% projection of
85.51 to 79.56 from 82.22 at 76.27. Intraday bias is back on the upside
and further rise should be seen back to 79.56/82.22 resistance zone
first. Though, we'd prefer to see sustained break of 82.22 (which is
close to 61.8% retracement of 85.51 to 76.28 at 81.98) before confirming
reversal. On the downside, below 77.84 minor support will turn bias
back to the downside for 76.20. Meanwhile, break of 82.22 should pave
the way to 85.51 and above.
In the bigger picture, note that USD/JPY's rebound from 75.98 low was
held by medium term long term falling trend line as well as the 55
weeks EMA. Thus, down trend from 124.13 could still be in progress.
Current fall from 85.51 might now extend through 75.98 towards 70
psychological level. In any case, break of 82.22 resistance is first
needed to indicate completion of fall from 85.51. Secondly, break of
85.51 is needed to revive the case that USD/JPY's down trend has
finished. Otherwise, we'll stay cautiously bearish in the pair.
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