Bank of Japan faced pressure to expand easing program earlier today with Japan Industrial Output showing the steepest fall since the Earthquake on Mar 2011. Furthermore, Household spending shrunk for the first time in 8 months, with New Home Sales continuing to contract for 3 months running. BOJ did respond with an 11 Trillion Yen expansion in its Asset Purchase Program (APP), while keeping its Credit Loan Program at 25 Trillion Yen. However this increase was below market’s expectation of a 20 Trillion push.
Yen Basket (1M)
USD/JPY M5
It is not surprising to see Yen strengthening after BOJ missed the 20T mark. Yen strengthened across all crosses, moving the Basket index to 146.78, slightly above 19th Oct closing level, but still a distance away from the next swing low around 147.30. USD/JPY dropped around 50 pips lower following the news, and managed to push lower further but stabilized just shy of 79.50.
USD/JPY H8
When compared with the previous expansion on 19th Sep (18th Sep EDT), we can notice a few similarities:
1) Strong rally before announcement
2) Expansion of around 10 Trillion Yen
3) Price trade lower following news announcement
Will we see similar bearish follow through just like how price reacted between 19 – 28th Sep? Even if there is, price may find support around 78.90 – 79.00 which was the peaks on numerous occasions since 7th Sep. Resistance can be found along 79.90 – 80.00.
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