Summary:

  • BoJ keeps its monetary policy settings unchanged, growth outlook kept as well
  • JPY gains along with the NIKKEI (JAP225 on xStation5) post the BoJ meeting
  • US Senate reaches a deal to end a government shutdown, Wall Street makes fresh highs anyway

In spite of the fact that the Bank of Japan chose to keep all its monetary policy settings unchanged, the yen along with the domestic stock market gained quite noticeably. Notice that there were some assumptions that GDP and inflation outlook could be raised, however they did not and despite that we saw a jump in the Japanese currency which could be a bit misleading. Anyway, the BoJ maintained its short-term interest rate target at -0.1%, and the goal for the 10Y yield around 0%. Moreover, it left a pledge to buy JGBs more or less at the current pace untouched, thus its holdings should increase at the annual pace of roughly 80 trillion JPY.

Even though the central bank decided to raise the assessment on inflation expectations underlining that they have been moving sideways recently, core CPI forecasts for the two upcoming fiscal years were remained unrevised at 1.4% and 1.8% for FY 2018/2019 and FY 2019/2020 respectively. On the other hand, the BoJ extended a deadline for its loan programmes aimed at boosting growth potential by 1 year. What could be interesting, the bank expects inflation ought to reach the 2% target around FY 2019/2020 saying that momentum for hitting it is maintained but lacks strength. Finally let’s add that today’s decision on yield curve control was made by 8 votes in favour and 1 (Kataoka) opposing it.

link do file download linkThe Japanese yen gained following the BoJ decision even as there was nothing unexpected there. From a technical point of view the pair remains below a key resistance, hence any rises could be contained at this stage. On the flip side, a divergence with the US bond market is so immense that it could justify larger increases on the USDJPY. Source: xStation5

Let us point that the JPY’s strength has been slowly evaporating along with the rising NIKKEI. The Japanese equity market closed up 1.3% and reached its highest point since November 1991! There were two external factors behind the move though. The first one is Wall Street where the SP500 (US500) managed to close at its highest level ever following a slew of upbeat earnings. The second is the oil market which gained a foothold yesterday. Bear in mind that OPEC members along with Russia declared during the weekend the ongoing production cuts are likely to stay in place at the end of this year.

Moving to the US stock markets one needs to stress that the major indices completely shrugged off a temporary government shutdown which in turn was ended tomorrow evening. Namely, Senators voted by a comfortable 81-18 margin to end the government shutdown, the move which allowed the Congress to pass a short-term funding bill. It needs to notice though that financing is warranted through 8 February and then it will be a need to extend it. Wall Street played down any risks related to politics as the SP500 increased 0.8%, the Dow Jones (US30) advanced 0.55% whilst the NASDAQ (US100) moved up as much as 1%. Inflowing earnings could shore up the US equity markets as well, for example the yesterday’s gains were buoyed by Netflix reporting higher than expected revenue sending the company market valuation beyond $100 billion for the first time.

link do file download linkThe SP500 smashed a resistance placed in the vicinity of 2808 points nearing substantially 2850 points. Once a pullback occurs the broken line 2808 points should be treated as the closest support for bulls. Source: xStation5