The Bank of Japan, as it always does, surprised markets by moving the benchmark rate into the negative territory at -0.10% and the USD/JPY strengthened more than 300-pips.
Stay tuned as the marginal chance could become a certainty in next six months amid retaliation and counter retaliation from major central bankers.
Reaction in the Japanese markets
- USD/JPY up more than 2%
- Japan now has negative yields on 7-year government bond
- Nikkei closed with 2.8% gain.
Moderate risk-on, but no fireworks
- The equities across Europe rallied. The DAX was up around 0.60% before the US opening bell, but has now extended gains to trade 1.4% higher. The Dow also advanced 1.2%.
- Meanwhile, the GBP/JPY and EUR/JPY are up 1.3% each.
- US treasury yields dropped. The 10-year yield fell to four month low, while the 2-yr yield hit three month low
- BOJ moved to uncharted territory and
- Speculation the bank is no more comfortable with purchasing more JGBs and hence resorting to negative rates.
GBP/USD drops sharply, BOE rate cut ahead?
- The GBP/USD is down 1%. The high yielding currencies – AUD, NZD are unable to do much against the USD
- The negative rate in Japan means more outflows from Japan in search of high yields. This should have led to a much sharper rally in the JPY crosses – GBP/JPY and thus should have lend support to the GBP/USD pair.
- However, the cable is down 1%, which clearly indicates the markets believe negative rates in Japan would force the Bank of England to delay its rate hike even further.
- EUR/USD is down as well, again due to speculation that ECB would have to do more. More pressure on the ECB also means pressure on the BOE. BOE benchmark rate stands at 0.5% and the bank certainly has room to cut rates, given the ECB, SNB and BOJ are in the negative territory.
- We have already seen BOE make a transition from “rates could rise at the turn of the year†to “now is not the time to hike rates†on account of low inflation and strong GBP. The transition was anticipated here (https://www.fxstreet.com/analysis/macro-scan/2015/03/25/) last year in March.
- Hence, it would not be surprising if the BOE actually moves towards rate cut now.
Stay tuned as the marginal chance could become a certainty in next six months amid retaliation and counter retaliation from major central bankers.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD trades sideways below 1.0450 amid quiet markets
EUR/USD defends gains below 1.0450 in European trading on Monday. Thin trading heading into the Xmas holiday and a modest US Dollar rebound leaves the pair in a familair range. Meanwhile, ECB President Lagarde's comments fail to impress the Euro.
GBP/USD stays defensive below 1.2600 after UK Q3 GDP revision
GBP/USD trades on the defensive below 1.2600 in the European session on Monday. The pair holds lower ground following the downward revision to the third-quarter UK GDP data, which weighs negatively on the Pound Sterling amid a broad US Dollar uptick.
Gold price holds comfortably above $2,600 mark; lacks bullish conviction
Gold price oscillates in a range at the start of a new week amid mixed fundamental cues. Geopolitical risks continue to underpin the XAU/USD amid subdued US Dollar price action. The Fed’s hawkish stance backs elevated US bond yields and caps the pair’s gains.
The US Dollar ends the year on a strong note
The US Dollar ends the year on a strong note, hitting two-year highs at 108.45. The Fed expects a 50-point rate cut for the full year 2025 versus 4 cuts one quarter earlier, citing higher inflation forecasts and a stubbornly strong labour market.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.