Bank of Japan Rethinks Policy Framework

After much fanfare and anxiety, the Bank of japan announced its latest monetary policy decision, leaving its benchmark interest rate at -0.10% while refraining from adding to its existing quantitative and qualitative easing program.  The new steps undertaken by Japan’s Central Bank include its decision to make yield curve control the central yardstick of its new structure, eliminating the maturity range for bond purchases and abandoning the target to expand the monetary base by 80 trillion Yen annually. Furthermore, the BoJ stated that it would resort to buying 10-year JGBs to enable the yield to float around zero percent.  Following the outcome, economists now expect the bank to not just target asset purchases, but also keep an eye on bond yields, allowing greater flexibility with regards to the remaining tools available.  In response to the decision, EURJPY rallied to the highest point since September 16^th before pulling back from intraday highs.

Following the positive NAHB report earlier in the week, US housing bulls were met with disappointment after housing starts fell in August due to a deeper than anticipated decline in certain regions.  The noteworthy mention was the -14.80% slide in starts in the South to a 543,000 annualized pace. This was the steepest drop since October of last year. All the other three regions - the West, Midwest and Northeast - showed a pickup in activity.  Besides effectively offsetting improvements in other parts of the country, the latest data adds to a conflicting outlook for the homebuilding industry as a whole.  According to the report, new homes breaking ground fell -5.80% to an annualized pace of 1.142 million, from July’s higher revised 1.212 million rate.  Stocks were mostly lower on the session, with index futures only rebounding after the Bank of Japan announcement.