Yen soars after BoJ disappoints but says will review all policies at nex

The Bank of Japan announced only a modest tweak to its monetary policy at the end of its two-day meeting today, leaving financial markets widely disappointed which were expecting bolder measures.The Bank decided to increase the size of its purchases of exchange-traded funds from 3.3 trillion to 6 trillion yen annually. It also announced a doubling of the size of its dollar lending facility to $24 billion in a move designed to help Japanese businesses overseas. However, the Bank kept the size of its purchases of Japanese government bonds at an annual pace of 80 trillion yen and its main policy rate at -0.1%.The yen rose sharply in currency markets after the decision as most analysts had priced in a larger stimulus. The dollar plunged to a 2½-week low of 102.70 yen, having traded above the 105 level ahead of the announcement. But it managed to rebound to around 103.40 yen in late Asian session as traders took note of the Bank’s statement, which said that the Bank will conduct a “comprehensive assessment” of its entire policy at the next meeting. This raises the possibility of the Bank of Japan taking further action in September when it next meets.Today’s decision comes despite weaker-than-expected inflation figures out of Japan, which showed CPI excluding fresh foods falling to a three-year low of -0.5% year-on-year in June. Expectations were for core inflation to remain unchanged at -0.4%. Household spending also disappointed as it fell by 1.1% month-on-month in June and sharply missed estimates of a 0.4% increase.There was some good news however from industrial output and unemployment data. Industrial production jumped by 1.9% over the month in June, beating forecasts of 0.7%. The unemployment rate meanwhile declined to 3.1% against expectations it would stay unchanged at 3.2%.The Bank of Japan’s decision weighed on other Asian currencies such as the Australian and New Zealand dollars which erased earlier gains following the announcement. The aussie eased to 0.7514 against the greenback, while the kiwi fell to around 0.7093.In European currencies, both the euro and the pound were firmer against the dollar today. The single currency ignored weaker-than-expected French GDP figures, which showed the French economy was stagnant in the second quarter. The euro climbed back above 1.11 dollars in late Asian trading ahead of the GDP release for the whole of the euro area later in the day.The pound was also bullish, rising above 1.32 dollars as traders shrugged off weak consumer confidence data from GfK that showed a deterioration in the index in July from -1 to -12.Looking ahead to the rest of the day, Eurozone flash inflation for July and preliminary GDP estimates for the second quarter will be eyed in the European session. In the US session, the advance GDP estimates for the United States will be watched along with Canada’s monthly GDP estimates.

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