- The Japanese Yen rose against most things Tuesday
- The BOJ made modest cuts to its bond buying operations
- However, the move was slightly puzzling as this doesn’t look like overt monetary ‘tightening’
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The Japanese Yen made gains Tuesday after the Bank of Japan cut the amount of government bonds (JGBs) it purchased.
The central bank bought JPY190 billion (US$1.7 billion) of 10-25-year paper, compared to JPY200 billion at its last operation. It bought JPY80 billion in longer, 25-year-plus bonds, below the JPY90 billion purchased previously.
The new year begins with markets on broad watch for any signs of stimulus withdrawal at major central banks. However, while the BOJ news could qualify in the broadest sense, it’s important to remember that unconventional stimulus efforts have a focus on Yield Curve Control. This policy has been in place since 2016 and is intended to spur lending by always ensuring a gap between the short-term rates at which banks borrow and the longer rates at which they lend. Tuesday’s buying is at least as likely to be part of that programme than any intended stimulus cut, even if markets seem less certain on the point.
Of course the BOJ may in time announce a cut the amount of bonds it buys from the market overall, and that will be a clear stimulus reduction. But it has not done so yet and publicly remains committed to all stimulus measures until inflation picks up sustainably- something it shows little sign of doing. There have been market mutterings suggesting that the BoJ could abandon some stimulus before inflation picks up, but so far mutterings they remain.
On its daily chart, USD/JPY’s broad range trade seems to be enduring into 2018. The current band is bordered to the downside by mid-December’s lows in the 112.00 area and earlier highs around 113.61.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX