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FOREX-Yen sinks on BOJ's aggressive balance sheet expansion
April 4, 2013 / 6:31 AM / 4 years ago

FOREX-Yen sinks on BOJ's aggressive balance sheet expansion

* Dollar/yen jumps nearly 2 pct

* BOJ says to double monetary base in 2 years

* BOJ’s unanimous decision on many policy steps seen as positive for dlr/yen

* ECB & BOE policy meetings also eyed

By Hideyuki Sano

TOKYO, April 4 (Reuters) - The yen dropped sharply on Thursday after the Bank of Japan announced aggressive easing, unveiling a plan to double its holdings of bonds and stocks in two years, ending doubts that it would underdeliver as it had often done in the past.

The BOJ also said it would extend the average maturity of bonds it holds to around seven years from around three years now, as new Governor Haruhiko Kuroda ditched the central bank’s traditional stance of shunning long-term bonds.

“The measures announced overall were bold, and more than what had been expected for,” said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

The dollar jumped 1.8 percent to 94.79 yen, pulling further away from a one-month low of 92.57 hit on Tuesday, having recovered more than a half of its decline from a 3-1/2 year peak of 96.71 set a few weeks ago.

The BOJ’s new plan means it will buy about 7 trillion yen ($73 billion) bonds per month, or about 1.4 percent of GDP, compared to the Fed’s buying of $85 billion, which is about 0.6 percent of the U.S. economy.

“Monetary easing is more aggressive than expected. Action seems to reinforce a message that it will do whatever it takes. This should keep the yen-bearish story intact,” said Sim Moh Siong, FX strategist for Bank of Singapore.

The BOJ also pledged more buying of riskier assets such as equity exchange traded funds (ETFs). The bank’s nine-member board backed the decision unanimously except for one objection vote on a minor wording issue on policy statement, pointing to Kuroda’s strong leadership.

“It seems there was a strong consensus among the board members, which is good,” said Kyosuke Suzuki, director of FX at Societe Generale.

100 YEN?

While some market players say the BOJ’s decision could help the dollar head for a big figure of 100 yen later in the year, others were more cautious.

“While I do agree that the yen will decline in the long run, I still think the yen could gain this quarter on adjustment after a sharp fall. For the dollar to rise further, we need strong U.S. economy but U.S. data is showing otherwise,” said Koji Fukaya, CEO of FPG Securities.

Indeed the dollar had come under pressure overnight after disappointing U.S. private sector jobs data, which prompted traders to ratchet down their expectations for Friday’s payrolls data.

In addition, U.S. service sector growth fell to the slowest in seven months, denting recent optimism on the U.S. economy.

Also in focus later in the day are policy meetings of the European Central Bank and Bank of England.

Neither central bank is expected to deliver any new stimulus for now, although the ECB is likely to try and calm markets by pledging to keep the banking system lubricated after Cyprus’s brush with financial meltdown.

Still the risk of any surprises, such as an interest rate cut from the ECB or a restart of the BOE’s bond-buying programme, is keeping investors wary of the euro and sterling.

The euro was at $1.2845, flat on the day but not far from a four-month trough of $1.2750 plumbed on March 27. Sterling was little changed at $1.5130, having dipped to a two-week low of $1.5075 on Wednesday.

The Australian dollar briefly gained to as high as $1.0495 , near its 10-week high of $1.0498 hit on Wednesday, on surprise strength Australian retail sales. But it last stood flat at $1.0453 as option-related offers at $1.05 were blocking the currency’s further advance.

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