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JPY declines sharply after BoJ decision

Wednesday, November 01, 2023

Today’s headlines

What’s happening: The Japanese yen fell sharply on Tuesday, as investors digested the Bank of Japan’s move.

What happened: Investors were disappointed by Japan’s central bank making only minor changes to its monetary policy.

The Japanese yen fell across the board on Tuesday, tumbling to a 15-year low versus one of the major currencies.

Why it matters: At the conclusion of its two-day policy meeting, the Bank of Japan tweaked its bond yield control policy again. The bank maintained its policy rate steady at -0.1% and kept the 10-year JGB yield target at about 0%.

Under the new scheme, the BoJ said it would allow the 10-year government bond yield to increase above 1.0%, re-defining it as a reference point rather than a rigid cap.

The Japanese currency had climbed to a two-week high on Monday, following a Nikkei report that the country’s central bank would change its yield control policy, which fuelled speculations of a more hawkish decision from policymakers.

The Japanese yen came under further pressure on news that the Ministry of Finance had remained out of the forex markets. Investors had assumed that the country’s government had taken measures to support the yen, but the official report said otherwise.

The BoJ also revised its inflation forecast higher for fiscal years 2023, 2024 and 2025, projecting inflation to ease back to below the 2% target in 2025.

Strength in the US dollar also weighed on the yen. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.5% to reach 106.66 on Tuesday.

The EUR/JPY rose to a 15-year high of 160.84 on Tuesday but closed a little lower, at 160.43.

The Japanese yen dipped to a new one-year low against the US dollar on Tuesday, closing the session higher at 151.67. The yen also recorded losses versus the British pound, the Australian dollar and the Swiss franc.

What to watch: Investors will watch the next policy decision from the Bank of Japan, as its decision regarding yield curve control could significantly impact the yen. The release of the US Federal Reserve’s interest rate decision today will also remain in focus.

The markets today

US stocks will be in focus today ahead of the Fed’s rate decision

Context: Stocks on the Wall Street settled higher on Tuesday, but recorded losses for the month of October.

Details: Investors continued to assess earnings reports from major companies on Tuesday.

Caterpillar’s stock fell around 6.7% on Tuesday, despite the company reporting better-than-expected quarterly results. Shares of JetBlue Airways shares declined by more than 10% after the airline reported downbeat third-quarter earnings and issued weak guidance for fiscal 2023.

On the economic data front, the S&P CoreLogic Case-Shiller home price index increased 2.2% year-over-year for August, compared to 0.2% growth in July. Compensation costs for civilian workers climbed by 1.1% in the third quarter.

Real estate and financial stocks were among the top performing sectors on Tuesday, gaining 2% and 1.1%, respectively.

The Dow Jones index added 123.87 points, or 0.38%, to close at 33,052.87, while the S&P 500 rose by 0.65% to settle at 4,193.80 on Tuesday and the Nasdaq 100 jumped 0.52% to 14,409.78.

Stocks exited October in the red, recording the third consecutive month of losses. The Dow Jones index was down 1.4%, while the S&P 500 lost 2.2%. Both indices recorded their first three-month losing streak since March 2020.

US stock markets remained under pressure last month due to a surge in Treasury yields, with the benchmark 10-year Treasury yield breaching the 5% mark for the first time since 2007.

What to watch: Investors await the Federal Reserve’s interest rate decision, with policymakers widely expected to keep rates unchanged at today’s meeting.

The release of economic reports on ADP employment change and manufacturing PMI will also remain in focus today. Private businesses in the US, which added 89,000 workers in September, the least since January 2021, are expected to hire 65,000 workers in October. Analysts project the ISM manufacturing PMI to improve to 49.5 in October, from 49 in September.

Other Markets: European indices closed mostly higher on Tuesday, with the DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.64%, 0.89% and 0.59%, respectively, and the FTSE 100 down by 0.08%.

The news shaping the markets

Ukraine’s army said it had “successfully hit” parts of Russia’s air defence system located in Crimea. The news sent the safe-haven US dollar index higher this morning.


China’s Caixin general manufacturing PMI unexpectedly declined to 49.5 in October, from 50.6 a month ago. This missed market estimates of 50.8 and exerted pressure on the CNY/USD forex pair.


Australia’s private house approvals fell by 4.6% to 8,338 units in September, following a 5.8% increase in August, which sent the AUD/USD pair lower in forex trading this morning.


South Korea’s S&P Global manufacturing PMI declined to 49.8 in October, from 49.9 in the prior month. This signalling further contraction in the manufacturing sector exerted pressure on the KRW/USD forex pair.


Thailand’s S&P Global manufacturing PMI declined to 47.5 in October, from 47.8 in the previous month. This being the third consecutive month of contraction sent the THB/USD pair lower in forex trading this morning.

What else to watch today

Russia’s manufacturing PMI, unemployment rate, business confidence, corporate profits, real wages, retail sales, money supply M2 and GDP, Turkey’s manufacturing PMI, UK’s Nationwide house price index and manufacturing PMI, South Africa’s manufacturing PMI and total vehicle sales, US MBA mortgage applications, S&P Global manufacturing PMI, job openings, construction spending, job quits, crude oil inventories, gasoline stocks change and distillate stocks, India’s money supply M3, Brazil’s industrial production, manufacturing PMI and balance of trade, Mexico’s business confidence indicator and manufacturing PMI, Canada’s manufacturing PMI, Australia’s CoreLogic home value index, as well as Italy’s new passenger car registrations.


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