Currency traders are reacting to the unexpected aggressive policy action announced by the Bank of Japan this evening by coming back in droves to sell the Yen, which had been steadily moving higher lately due to safe haven flows and disappointment that had set in. The thinking had been that the new BOJ leader would not act as aggressively as some had hoped. That sure went out the window with this news!
They are basically going to be doing Y7 trillion (somewhere near $75 billion) each month of purchases of Japanese government bonds. Currently they were buying Y3.8 trillion each month. Not only that, they are going to also target longer dated bonds, something that they had not done previously with a 3 year maturity rate the longest dated bond that was purchased under their current liquidity measures.
The news also stated that the BOJ would purchase Real Estate REITS as well as exchange traded funds or ETF's in addition to aiming to increase the monetary base annually by Y60-Y70 trillion!
This is quite aggressive. I should note here that gold, in yen terms, or yen-gold as I prefer to call it, shot sharply higher and is currently up nearly 2.5% as I type these comments.
The US equity markets are following the lead of the Japanese Nikkei which ADORED the news. We will have to wait and see how today's downside reversal pattern holds up. Is it going to be yet another one or two day wonder and then back off to the upside race we go or is the S&P going to finally see something of a deeper and more prolonged setback.
There are plenty of warning signs out there in regards to US stock prices - the Down Transport are weaker than the actual Dow; the Russell 2000 is losing ground to the larger cap stocks, etc, all of which indicate that traders are leery of risk. This announcement by the BOJ, being as unexpected as it was, may put those fears on the back burner for now.
The key for gold will be how it handles the inception of London trade and particularly New York trade.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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