Markets Calm Amid Closures
FX markets traded in very tight range overnight as the initial flurry of post-BoJ activity ran its course ahead of the London open. In a somewhat disappointing decision, the Bank of Japan expanded its Asset purchase Program by a further JPY 11 trn overnight, taking the total target size up to JPY 91trn. It was a sizeable increase, but not enough to satisfy market expectations (which had been building since the beginning of last week). What’s more, the allocation to JGBs was only worth JPY 5 trn, adding to the sense of disappointment for those who were heavily positioned for USDJPY to push through 80.00. A further JPY 5 trn was earmarked for T-bill purchases, and the remainder will be spent on boosting the Bank’s holdings of ETFs, corporate bonds, and corporate paper. Further diluting the impact, the additional purchases are to be spread out over the whole of next year, rather than concentrated in the first 6 months of 2013. So as it stands, the monthly pace of JGB purchases is still scheduled to drop as we cross over into the new year. The BoJ also introduced yet another new lending program, but this one is similar in principle to the Bank of England’s Funding for Lending Scheme. The intention is to reward commercial banks with cheap central bank liquidity if the banks expand the provision of credit to the real economy. Clearly, central banks globally are starting to take notice of better private-sector credit numbers coming out of the UK since the FLS programme was launched. Although one month’s worth of data should not be extrapolated heavily upon, the acknowledgement that conventional QE may be offering weaker marginal impact will prompt central banks to pursue innovation. Fed Chairman Bernanke’s Jackson Hole speech gave a nod to the FLS as well and we would expect associated commentary to strengthen heading into next year. Ahead today, US data releases are so far not affected by Hurricane Sandy but most asset markets are closed per SIFMA recommendations. Numbers out including the August S&P/CS home price index and October consumer confidence index. EURUSD traded 1.2887-1.2959 and USDJPY 79.29-79.99.
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