USD/JPY Dropped On Fading BoJ Stimulus Expectations
- Japan’s government is likely to inject JPY 6 trillion in direct fiscal outlays into the economy over the next few years under a planned stimulus package, , the Nikkei newspaper reported on Tuesday. The Finance Ministry had initially earmarked JPY 3 trillion for direct spending from national and local governments under its draft fiscal stimulus plan. But the amount was doubled on requests for bigger spending by government officials and ruling party lawmakers, the Nikkei said without citing sources. The size of spending could increase further as the government presents the draft stimulus plan for negotiations with ruling party lawmakers from Tuesday, the paper said.
- The direct spending would be part of a massive stimulus package to bolster the economy, which would also consist of state subsidies to private companies and lending programmes from quasi-government financial institutions. The total size of the package, which could be announced as soon as August 2, could exceed JPY 20 trillion, the Nikkei said. To fund part of the package, the government will compile a supplementary budget for the current fiscal year of around JPY 2 trillion, the paper said. The rest will be funded in the budget for the next fiscal year beginning in April 2017, it said.
- The Bank of Japan is expected to announce expanded asset purchases and a rate cut further into negative territory at the end of its policy meeting on Friday.
- The JPY rose today, as traders dialled back expectations of how much new stimulus Japanese authorities will inject into an ailing economy. The JPY has dropped in the past few weeks on growing expectations that Japanese authorities would provide both fiscal and monetary stimulus to kick-start inflation. Some had been hoping for helicopter money, whereby the central bank would underwrite government debt, though policymakers have denied this is part of their plans.
- Japanese Finance Minister Taro Aso said on Tuesday he expected the BOJ to continue doing its utmost to meet its 2% inflation target and left it to the BOJ to decide on specific steps.
- The USD/JPY has been capped by the cloud in recent days. We are looking to fade recovery moves at 105.80. A close below 104.25 level (38.2% retrace of the 99 to 107.49 rise) would be a strong bearish signal. We expect an elevated volatility in the coming days.
GBP/USD: Support At 1.3059 Still Not Broken
- Bank of England policymaker Martin Weale said he saw the economic outlook differently after much weaker-than-expected British PMI data, a week after saying he needed firmer evidence before backing an interest rate cut. He said that PMI data for the services and manufacturing sectors, which pointed to the sharpest contraction since the 2008-09 financial crisis were a lot worse than he had thought. Markets are taking Weale’s comments as near confirmation that the Bank may introduce a stimulus package at its next meeting.
- The BoE surprised markets in July by not cutting rates, which had been on hold since 2009, but the minutes of the decision did show that most policymakers expected to back an unspecified package of measures to boost the economy in August.
- Weale has served for six years on the BoE’s Monetary Policy Committee and will step down after next week’s decision. He is aware that history will be less kind to him given he was in a minority in favour of hiking interest rates in late 2014. It will be interesting to see if BoE MPC member Kristin Forbes also changes her colours from the “Keep calm and carry on” motto last week.
- The GBP/USD hit a two-week low on Tuesday after Weale’s comments, but the 1.3059 level (61.8% retrace of the 1.2798 to 1.3481 rise) is still a very strong support. What is more, 14-day momentum is now marginally positive, which is a risk factor GBP bears need to keep in mind. We stay sideways on all GBP pairs.
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Daily Trading Strategies – Precious Metals
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