Currency Trading Ahead Of Fed & BoJ

A Nikkei report on Tuesday said Japan is likely to inject 6 trillion yen in direct fiscal outlays into the economy over the next few years. In reaction to the report USD/ JPY lose 1.29% trading at 104.27 for today session and Nikkei declined 1.43% closed at 16,383 as investors are disappointed of the stimulus plans offered by Japanese policy makers.
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The Japanese yen saw huge moves in the Asian session. The USD/JPY dipped 1.29% points to trade at 104.27 after soaring to 107 just last week. The strength of the Japanese currency is upsetting the Abe government and pressuring the Bank of Japan. Against the weaker euro the yen is trading at 114.91. Reuters said Most economists surveyed by Reuters expect the BOJ to take some form of easing steps at its two-day meeting that ends on Friday.

The Japanese government is also putting together a massive spending package worth about 20 trillion yen ($189 billion), government sources told Reuters last week, though actual public spending will be far less than the headline number suggests and reports of a possible only 6 trillion Yen stimulus package disappoints markets.

“For the yen, what matters most in our opinion is the ‘mamizu’ or real water content of the fiscal package – more so than the headline total which is easily inflated,” said Ray Attrill, global co-head of FX strategy at National Australia Bank. “The bigger this is, the more stock market supportive it will be and negative for the yen.”

While the news had no direct market impact, sentiment was also subdued after 19 people were feared dead and 45 injured in an attack by a knife-wielding man at a facility for the disabled outside of Tokyo. Such mass killings are extremely rare in Japan.

“Come Friday, Japan is expected to lend more monetary support to the world’s struggling number three economy,” Western Union Business Solutions said in a note on foreign exchange developments.

Currently, currency traders are in expect of BOJ will disappoint markets with their stimulus package program and therefore are wary sell the Yen.

The yen had sunk to six-week lows as this week’s decisions approached, it said. “Should Japan stop short of meeting markets’ high hopes for aggressive action, any move in the yen could be up rather than down.”

The Nikkei was also effected by BOJ stimulus plans as reports of 6 trillion Yen (56 billion Dollar)  for the next years disappoint markets.

J.P. Morgan said the monetary action alone may not be enough to pull down the yen, particularly as Japan’s trade surplus is starting to widen. Moreover, a mere conventional easing won’t deliver any kind of positive surprise, it said.

Before the BoJ meeting concludes on Friday the US Federal Reserve will issue its rate and policy decision late on Wednesday. The US dollar is expected to remain strong, printing at 97.05. Investors shrugged off the Group of 20 finance ministers and central bankers meeting over the weekend which redoubled their commitments to use all available policy tools to boost economic growth.

Elsewhere The dollar has slipped to around 1.1008 against the Euro on Tuesday ,

Germany’s business sentiment weakened in July as the ‘Brexit’ vote made businesses less optimistic about their future. Nonetheless, they assessed a slight improvement in the current situation. The business climate index fell less-than-expected to 108.3 in July from 108.7 in June, survey results from the Munich-based Ifo economic institute showed Monday. The expected score was 107.5.

The pound reached an early low of 1.3164 against the greenback, but has since bounced back to around 1.3110 in a stable trading session so far.

UK industrial orders declined further in July, the Industrial Trends Survey from the Confederation of British Industry showed Monday. The total order books balance dropped to -4% in July from -2% in June. The export order books declined notably to -22% from -14% in the prior month.

British business confidence plunged to its lowest level in seven-and-a-half years, after the surprise “Brexit” vote, survey results from the Confederation of British Industry (CBI) showed Monday.

The quarterly CBI Industrial Trends survey showed that 52% of firms were less optimistic about the general business situation than three months ago, while 5% said they were more optimistic, giving a balance of -47. That was the lowest figure since January 2009, when it was -64, the survey said. Optimism about export prospects for the year ahead also fell, down to -11.