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Yen's spike shows taste of what comes when BOJ really does shift

Jan 09 2018 08:07
Christopher Anstey, Bloomberg

A minor tweak in a regular Bank of Japan (BOJ) bond-purchase operation on Tuesday was enough to send the yen climbing the most in almost a month, even though evidence weighs overwhelmingly against the adjustment signifying anything meaningful.

What the yen’s spike does show is just how big a move will come whenever the central bank does telegraph a fine-tuning in its stimulus program. Tuesday’s gain was as big as 0.5% against the dollar, in wake of the BOJ trimming purchases of bonds dated in 10 to 25 years by ¥10bn ($89m) compared with its previous operation.

Governor Haruhiko Kuroda said last January, in wake of speculation about the significance of similar mechanical tweaks, that such operational tweaks don’t send any signals on policy intentions.

Just in the past two weeks, he emphasized that policy makers are far from their 2% inflation target and that Japan’s "deflationary mind-set" isn’t easily going away - no indication of any appetite to scale back stimulus.

Tuesday’s move was minor compared with what happened to the euro on June 27, when traders interpreted comments from European Central Bank President Mario Draghi as a sign that ECB tapering was coming.

The euro surged 1.4% that day, and has remained stronger ever since.

The prospect of similar appreciation in the yen could itself reduce chances of the BOJ engaging in fine tuning of its policy keeping 10-year government bond yields around zero.

Moves like Tuesday’s help explain why Kuroda hasn’t been willing to drop the annual ¥80trn bond-buying target from policy statements - even though the actual purchases are now far below that pace.

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