BoJ Refrains from Expanding Easing

Daily Analysis - 30/10/2015

Bank of Japan Cites Confidence in Reaching Inflation Target As Reason Behind No Policy Changes

While markets await the BoJ press conference where more details are likely to come out, the Yen remains volatile after the news release after today’s decision saw a single dissenter on the committee. Asian equity markets are trading notably softer after the BoJ’s decision.

US GDP Estimate Hits 1.50%

The preliminary third quarter GDP print showed the economy expanded at a 1.50% pace according to the advance estimate report released yesterday. The advance GDP price index for the quarter increased 1.20%, missing estimates of 1.50% and down from 2.10% from the second quarter. Although subject to revisions, the initial GDP estimates confirm that the US economy continued to experience moderate growth during the third quarter of the year before growth normalizes from the fourth quarter onwards. The modestly better GDP results saw the 10-Year US Treasury yields rise to 2.14%, posting a one-month high as the markets start to price in the probability for a December rate hike, which until yesterday seemed improbable. The equity markets however continued to tread higher, with the S&P 500 closing the session at 2084.

Bank of Japan Leaves Policy Unchanged

The much anticipated Bank of Japan meeting today saw the Central Bank refraining from expanding the size of its existing quantitative and qualitative easing program. The policy decision was made with a vote of 8 - 1 while pledging to keep the current pace of monetary base at JPY 80 trillion. Market expectations were divided with some making the case for the Central Bank to expand monetary stimulus measures during the meeting today. The BoJ noted that it expects to see inflation reach the 2.00% target rate although at a slower than expected pace. USDJPY is currently volatile, marking a wide range already but trading below 121.00 after bouncing off the main resistance level of 121.37. A break out above this resistance could see further upside in store unless the pair corrects further to the downside in light of today’s decision.

Eurozone Inflation Estimates

Preliminary estimates for Euro Area consumer inflation is due out during the European trading session with expectations that headline CPI saw a slight uptick to 0.10% while Core CPI remains unchanged at 0.90%. Inflation has been one of the biggest concerns for the ECB which sparked speculation that the Central Bank will review and adjust the existing asset purchase program and consider expansion during its December meeting, sending the Euro spiraling down to 1.0920. In the event that preliminary inflation estimates meet expectations, the markets would likely view it as a signal that the ECB could act at its December meeting. Yesterday, Germany's inflation reports showed a modest improvement with the headline CPI rising to a 0.30% annualized pace after staying flat just one month ago. EURUSD closed on a bullish note yesterday at 1.0985.

Canadian GDP Expected to Rise

Canadian monthly GDP numbers are due out today with expectations that the Canadian economy grew at a 0.10% pace for the month, while expectations are for annualized GDP to have been upgraded to 1.00% expansion. Substantial monetary accommodation combined with a leveling off in oil prices for the time being has contributed to optimism that the impacts of policy loosening are being more broadly felt throughout the economy. The Canadian Dollar has remained strong despite giving up most of its gains in the post-FOMC US Dollar rally, but USDCAD managed to quickly recoup lost ground, closing yesterday's session at 1.3160. Other economic data for the day includes the US PCE price index which is expected to rise 1.40% on the core annualized basis and 0.20% for the month.