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BoJ Gives Gift of FX Volatility Pre-Christmas

FOREX
  • With markets expecting another copy-paste statement from the Bank of Japan, markets were caught offguard by the bank's decision to widen their tolerance band as part of the yield curve control programme.
  • The market read was hawkish, with yields shooting higher across the Japanese curve and the JPY rallying sharply against all others. USD/JPY cleared all nearby support to drop to the Y132.00 handle, making for a 5 point decline in prices.
  • EUR/JPY moved similarly, dropping to touch the 200-dma at 140.11. A firm break of this support would be the first since February, adding further pressure to a cross already at multi-month lows.
  • Firm JPY strength is pressuring global equity markets, with US futures pointing to a lower open on Wall Street today. This has fed into poor AUD, NZD trade, who remain the weakest currencies in G10.
  • Focus turns to US housing starts and building permits releases as well as the prelim December Eurozone consumer confidence.
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