Talking Points:
- Yen strengthened after Bank of Japan left monetary policy unchanged
- BOJ targets increasing monetary base by ¥80 trillion per year
- Nikkei 225 fell alongside USDJPY as BOJ disappoints dovish hopes
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The Yen strengthened as the Nikkei 225 index fell after the Bank of Japan voted to leave its monetary stimulus package unchanged amid speculation for an expansion. Traders were betting that the BOJ’s inability to reach its 2 percent inflation target and worries of a global economic slowdown made for a substantial chance of greater easing. In fact, options markets were heavily skewed in favor of Yen weakness ahead of the announcement, with traders willing to pay the highest premium in over five years for the right to sell the currency compared with the right to buy it. The central bank’s 8-1 vote to stay the course clashed with investors’ outlook, forcing them to reposition and sending the Yen upward.
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