Yen outperforms after BOJ policy announcement

The dollar is mixed against the majors. The yen is the best performer, up 1% after initially selling after the BOJ announcement. The Norwegian krone and the Loonie are underperforming. The euro is trading near $1.0820 after being unable to break below $1.08, while sterling is trading back above $1.49 after being unable to break below yesterday’s low near $1.4865. Dollar/yen is trading near 121.30 after earlier trading above 123.50, as markets had trouble digesting the BOJ tweaks to QE.

The BOJ was not expected to do anything. Governor Kuroda surprised the market with largely operational tweaks to what Japan calls Qualitative and Quantitative Easing. Initially, the yen sold off and Japanese shares rallied but then the markets reversed.

It should be noted that the expansion of the BOJ’s balance sheet remains unchanged at JPY80 trillion a year. There were five adjustments made to the current monetary policy. BOJ Governor Kuroda indicated that the measures announced do not amount to additional easing. He argued these measures were operationally necessary.

The markets seem confused and whipsawed. The Nikkei initially jumped 3%, reversed, and closed on its lows, which were about 2% below the previous day’s close. The reversal saw the Nikkei close the downside gap created by Thursday’s sharply higher opening.

The dollar’s movement against the yen was similar, though of a smaller magnitude than equities. The dollar initially jumped from about JPY122.50 to JPY123.55 and then reversed, hitting JPY121.00 in the European morning.

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