ECB Chief Says Little While Bank of Japan Rumors Surprise Yen Traders

Thursday was perhaps the first time in 5 years that Mario Draghi did nothing to upset the markets at his post ECB meeting press conference. The ECB keep stimulus program unchanged. The EUR/USD is just about flat for the day trading at 1.1009 while the US dollar is down a few points after strong home sales data. Traders focus is turning away from the ECB and looking forward to next week’s Federal Reserve meeting followed by the Bank of Japan.

The euro firmed against its key counterparts in the early New York session on Thursday, after the European Central Bank President Mario Draghi said that the policy makers require more time to assess the need for additional stimulus measures in the present economic outlook and urged Eurozone governments to accelerate the pace of structural reforms to help support the bloc’s recovery.

European markets have weathered the spike in uncertainty and volatility following the Brexit vote with encouraging resilience, Draghi said in his post-decision press conference at Frankfurt.

“The announced readiness of central banks to provide liquidity and the ECB’s accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained,” Draghi noted.

Draghi emphasized that the euro area countries must step up implementation of structural reforms to reduce structural unemployment and boost potential output growth in the euro area.

The swift and effective implementation of structural reform, coupled with accommodative monetary policy would not only lead to higher sustainable economic growth in the euro area but also make the euro area more resilient to global shocks, Draghi added.

The pound on the other had was hit by lackluster retail sales data but its losses were limited by weakness in the greenback. The pound closed at 1.320 down about 5 points for the session.

The odd movement came from the Japanese yen which gained strength against the greenback to trade at 1.0594 after broaching the 107 level earlier in the day. The euro staged a modest recovery to 117.48 against the Japanese yen, from a 6-day low of 116.14 hit early in the European session. This may be compared to a 4-week high of 118.46 set in the Asian session. On the upside, the euro is likely to challenge resistance around the 120 region.

Data from the Ministry of Economy, Trade and Industry reported that Japan’s all industry activity dropped for the first time in three months in May.

The all industry activity index slid 1% month-on-month in May, reversing a 0.8% rise in April. This was the first increase in three months but slightly slower than the expected drop of 1.1%.

The reversal for the yen came after reports the Bank of Japan may hesitate to introduce further easing when it meets next week. Reuters reported that some bank officials thought low inflation wouldn’t immediately trigger more central- bank action, as a tighter labor market eventually will boost wages and push up consumer prices. That means there’s no consensus among the policy makers on whether to deliver additional stimulus.

The yen had slumped against rival currencies earlier on Thursday, following news reports that the Japanese government is arranging to launch an economic stimulus package worth  20 trillion yen ($187 billion) to vault Japan out of more than a decade of deflation. The stimulus is higher than the originally envisaged 10 trillion yen worth package, due to inclusion of infrastructure-related outlays and the use of low-interest government loans, the reports said.