USDJPY - BOJ MISS; FISCAL STIM PACKAGE & TRADING YEN FROM HERE
Updated
BOJ - 3trn increase in annual ETF Purchases + 24bn increase in USD funding for banks
1. The BOJ on Friday delivered a shockingly poor package, imo they changed the snallest part of their current QQE programme.
2. What was interesting though was the markets reaction - immediately after the decision Yen spiked higher then lower to 103 level but from then and into and through the London Open Yen was being brought/ held up around the 103 level - it wasnt until NY came in at 1430GMT that Yen broke lower.
- But even then it was surprisingly a laboured move lower, taking almost the full NY session to find its lowes.
- Some of the UJ weakness was down to a big GDP miss of 1.2% vs 2.6%exp, which sold the rates market off now implying only a 12% chance of a hike in September vs 18% the previous day and 25% earlier in the week, so i t would have been interesting to see what would of happened with out this dollar downside impetus.
USDJPY from here:
1. Personally from 102.00 i see Yen lower in the near term e.g. we could easily open 50pips lower on sunday into the key level at 101.5 as the asia session adds to shorts that they missed during their own session post-BOJ.
- There is the possibility that we see some upside in Yen as the MOF releases their fiscal package - the more actual govt spending the package includes and the shorter the timeframe, the greater the impact of the fiscal package on giving UJ some relief - but still i advise shorting rallies as i beliveve we move into the 100s from here.
- That said in reality the impact of the fiscal package is likely to be limited if not completely muted as 1) the market already knows the extent and some of the details of the package and has done for the past week+ e.g. 28trn of which the market baring piece, the govt spending, is rumoured to be around 13trn - so this information is likely already baked into the price and imo was the driver of the support we saw on friday at the 103 level (asia/ ldn sellers wary of shorting in anticipation of the fiscal package). Thus any topside is only likely to come if MOF changes this dramatically to say 20trn govt spending (anything less is already pre-priced imo) OR even increases the package (but this is also unlikely as Japan has the highest govt debt:gdp ratio as it is) - but imo it is unlikely they would do either anyway.
- In-fact, i actually believe the MOF stimulus package has asymmetrical risks to the downside/ disappointing markets - as several MOF officials have commented that the 28trn package is such a large package that it is likely to be over several years - thus the longer the MOF stretch the package over more disappointment the market will price and this could actually end up being a driver for more Yen appreciation given some expected the whole 28trn in one year - which isnt impossible given the size of the Japanese economy (20x bigger than the package + not all of it is in fresh govt spending).
UJ View/ Trading strategy - Sell USDJPY asap Mrkt 102 - 100TP1 99TP2 - or wait for the 30/40% chance of a bounce and sell from 103/4 on Tuesday:
1. So I see UJ moving lower from here to the 100's, until Tuesday where i see there being a risk of the market gaining some topside MOF stimulus surprise (which nonetheless is capped at 103.5-104 tops - in which i would sell) but more likely MOF disappointment (e.g. 5y package, less than expected actual spending) which will give UJ seller more ammo and could push us through the 100 level, assuming UJ has traded on the offer since Sunday open (which is likely imo)..
1. The BOJ on Friday delivered a shockingly poor package, imo they changed the snallest part of their current QQE programme.
2. What was interesting though was the markets reaction - immediately after the decision Yen spiked higher then lower to 103 level but from then and into and through the London Open Yen was being brought/ held up around the 103 level - it wasnt until NY came in at 1430GMT that Yen broke lower.
- But even then it was surprisingly a laboured move lower, taking almost the full NY session to find its lowes.
- Some of the UJ weakness was down to a big GDP miss of 1.2% vs 2.6%exp, which sold the rates market off now implying only a 12% chance of a hike in September vs 18% the previous day and 25% earlier in the week, so i t would have been interesting to see what would of happened with out this dollar downside impetus.
USDJPY from here:
1. Personally from 102.00 i see Yen lower in the near term e.g. we could easily open 50pips lower on sunday into the key level at 101.5 as the asia session adds to shorts that they missed during their own session post-BOJ.
- There is the possibility that we see some upside in Yen as the MOF releases their fiscal package - the more actual govt spending the package includes and the shorter the timeframe, the greater the impact of the fiscal package on giving UJ some relief - but still i advise shorting rallies as i beliveve we move into the 100s from here.
- That said in reality the impact of the fiscal package is likely to be limited if not completely muted as 1) the market already knows the extent and some of the details of the package and has done for the past week+ e.g. 28trn of which the market baring piece, the govt spending, is rumoured to be around 13trn - so this information is likely already baked into the price and imo was the driver of the support we saw on friday at the 103 level (asia/ ldn sellers wary of shorting in anticipation of the fiscal package). Thus any topside is only likely to come if MOF changes this dramatically to say 20trn govt spending (anything less is already pre-priced imo) OR even increases the package (but this is also unlikely as Japan has the highest govt debt:gdp ratio as it is) - but imo it is unlikely they would do either anyway.
- In-fact, i actually believe the MOF stimulus package has asymmetrical risks to the downside/ disappointing markets - as several MOF officials have commented that the 28trn package is such a large package that it is likely to be over several years - thus the longer the MOF stretch the package over more disappointment the market will price and this could actually end up being a driver for more Yen appreciation given some expected the whole 28trn in one year - which isnt impossible given the size of the Japanese economy (20x bigger than the package + not all of it is in fresh govt spending).
UJ View/ Trading strategy - Sell USDJPY asap Mrkt 102 - 100TP1 99TP2 - or wait for the 30/40% chance of a bounce and sell from 103/4 on Tuesday:
1. So I see UJ moving lower from here to the 100's, until Tuesday where i see there being a risk of the market gaining some topside MOF stimulus surprise (which nonetheless is capped at 103.5-104 tops - in which i would sell) but more likely MOF disappointment (e.g. 5y package, less than expected actual spending) which will give UJ seller more ammo and could push us through the 100 level, assuming UJ has traded on the offer since Sunday open (which is likely imo)..
Note
cont..2. With risk-off assets looking as if they will now resume their 2016 up trend without any considerable risk-on easing package to stop them - with Fed Williams reiterating this sentiment saying "High Demand For Safe Assets Will Last For Some Time " and "Fed Williams sees 'Extraordinary Demand' for Safe Assets" - with gold up 1.1% yen up 3% UST up 0.7% on Friday this affirms my view - BOJ weere sup poised to provide some medium-long term risk stability in their package e.g. massive easing 20-30bps cut, 10-20trn QE and some more unconventional measures, but in lack of this it looks as if the above will continue to prevail.
Note
*Trading Strategy:*1. Selling USDJPY at market of 102 isnt a bad strategy, though more risk averse traders could wait until monday/ tuesday to see if we get a topside pull back (MOF or technical bounce) but i will say my conviction is lower regardless of this as i think we will see fresh asia selling to 100 at least, with no catalysts to support any upside - on Friday we heard a comment from Finace Minister ASO saying "FX Markets are being monitored with tension, reiterates readiness to act if needed" but it seemed to have little affect (but perhaps helping the 103 level hold longer than otherwise) as most of the JPY rhetoric does, especially now (no substance, never back up words). More statements could follow but they are unlikely to provide sustained or any topside, but could cause good selling opps if they do.
2. further By looking at history/ graph e.g. January 29th, April 29th (Previous BOJ meetings) where they have under-delivered (though not to this extent- this is the biggest under-delivery in their history imo) - we see UJ selling usually continues aggressively for 2-3+ days and averages 550pips, its not normally just one red daily bar and 300pips, its more days and pips - thus this supports the further downside view from here into the 100lvl at least. The only saving grace UJ has for potentially NOT following past trends is that it is at relatively low levels e.g. in january it came down from 121-16 in 3 days, and april from 111-106 on the 2-3 days after BOJ, but now since we are at 102 and 300pips lower after one day of the BOJ miss, the trend for moving lower for several days and more pips could be limited as 102 much lower than moving 600pips lower from 121 or 111. Though IMO the selling cap is much more likely to be seen at the key 100 level (or the 98.9 post brexit lows) rather than the current 102 (as there is little support here) - so infact previous history should play out about right as another 200-300 pips lower from 102 goes right into the technical support level at 100 or lows at 99 AND it satisfies the 500-600pip/ 1-3days post-BOJ sell-off trend that Jan/ Apr has formed. Further this July BOJ is no doubt the biggest disappointment, BOJ were expected to cut the rate between 10-20bps and did nothing, meant to increase QE by 5-20trn but did nothing - only made a small EFT and USD lending changes (net 60bn) so this should give sellers sufficient momentum to repeat history into the 100/99 level (if not more given the extend of the disappointment - though relative price is IMO the only support UJ has from tanking). Further, the risk of intervention is likely to be only rhetoric until the <95 level since they didnt intervene at the 100/99 levels post-brexit
Note
UPDATE:1. Some Bearish UJ bias coming in from JPY Officials/ GS:
- MR YEN SAKAKIBARA: ABE STIMULUS PLAN WON'T HAVE A MAJOR IMPACT 100 YEN LEVEL NOW EYED
- JAPANESE PM ABE ADVISOR HAMADA REITERATES OPPOSITION TO HELICOPTER MONEY
2. GOLDMAN: RISK RALLY DRIVEN BY COMBINATION OF LIGHT POSITIONING INTO BREXIT AND SEARCH FOR YIELD
-Risk Appetite Indicator Now Neutral, Suggests Markets More Vulnerable To Growth, Policy Disappointments
Note
UPDATE:3. Japan’s Shirai: It's better for BOJ to wait until December - forgoing the September meeting will certainly put more topside pressure on Yen; especially given July was meant to be the delivery, logic would say september would be the next date. Though given their reluctance to ease in July, there is no pressure in my opinion to ease in September either. Further BOJ action is likely to be sold aggressively as this is the 2nd time the BOJ have let down expectations massively.
Note
UPDATE:1. JAPAN FINMIN ASO: NO COMMENT ON FX LEVELS
2. JAPAN FINMIN ASO: RECENT FX MKT SHOWS EXTREMELY NERVOUS MOVES
3. JAPAN FINMIN ASO: NEED TO CAREFULLY WATCH FX MOVES
Note
UPDATE - Expected fiscal package from JPY MOF by BBG, seen at 7trn below expectations of 10trn+1. Actual spending will only make up about 7 trillion yen, according to a person familiar with the matter, with the rest consisting of loans and other financing, probably spread over several years. The package is the latest in a long series that have had limited impact on the economy, while Abe’s promise to make structural reforms -- tackling areas like immigration and employment regulation -- has fallen short of expectations.
- bloomberg.com/news/articles/2016-08-01/japan-set-to-give-details-of-28-trillion-yen-stimulus-package
2. Hopefully these claims are true, 7trn is much below the expectation of 10trn-13trn and should certainly help yen and £yen grind lower today.
Note
UPDATE:1. Meanwhile in Japan, the Nikkei Stock Average was down 1.3% as investors awaited details of Prime Minister Shinzo Abe's much-touted 28 trillion yen ($274 billion) stimulus plan, which will rank as the largest supplemental government spending package since the global financial crisis in 2009.
- But actual new, direct spending will total only about Y7.5 trillion, spread out over two years, people familiar with the situation said earlier. That would be less than the Y10 trillion package Mr. Abe introduced in his first year in office.
WSJ Reports
Note
UPDATE: 1. JAPAN FISCAL MEASURES COMPRISE 7.5 TRLN YEN IN NATIONAL, LOCAL GOVT SPENDING, 6 TRLN YEN IN FISCAL INVESTMENT AND LOANS -GOVT
2. JAPAN PM ABE'S CABINET APPROVES FISCAL MEASURES WORTH 13.5 TRLN YEN IN STIMULUS PACKAGE TOTALLING 28.1 TRILLION YEN -GOVT
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