Fed tapering, a non-committal BoJ and a negative China open add to jitters
Yesterday there were tentative signs of stabilisation in markets, but that has proven short-lived with anxiety around tapering by the Fed and lack of willingness from the Bank of Japan to intervene feeding off each other. Add to that, we had Chinese markets opening sharply lower after a three day break and reacting to the weaker Chinese data over the weekend. USDJPY broke below key support at 95.00 and stop loss selling down to 93.79 at one stage. The Nikkei, which was sharply lower at one stage (-6%) is now 20% from its peak and back to levels seen on April 4, the day the BoJ unveiled its monetary bazooka. This negative price action has come despite a surprising announcement and decent result on the Rimban (BoJ buying operation) this morning. Given that the Nikkei has provided a lead on USDJPY (see chart), there is nothing to stop the bearish price action in the near term. One would hope the BoJ could change this around, but Governor Kuroda has continued to appear non-committal in his comments, merely repeating press conference comments that “markets will settle to factor in positive economy moves”. We think this rout will eventually provide good opportunities to sell JPY if you believe in the power of the policy makers in determining markets.
Read the full report: FX Daily
BNP Paribas