Aggressive Bond Buying Sinks JPY

USD/ JPY dropped for the third straight day as the Bank of Japan (BOJ) yesterday started its aggressive monetary easing program. Following the strategy of the US Federal Reserve (FED), the BOJ is buying trillions of dollars of Japanese bonds in an effort to stimulate economic growth. The Japanese government intends to get out of the vicious inflation circle and has set a target of 2% inflation. The bond buying has boosted the Japanese stock market. US stocks also gained yesterday ahead of the starte of earnings season which is expected to show moderate growth.

The USD rallied to its highest level towards JPY since 2009, trading at 99,50 yen as the BOJ concluded its first bond purchases since announcing the new monetary easing last week. Wall Street dipped in early trading as caution ahead of the quarterly season dominated the sentiment. Stocks turned around and ended in positive territory. US stocks have rallied strongly over the last months with major indexes hitting record highs. Earnings forecasts are predicting a 1,6% rise in earnings over the last year.

The Nikkei index in Tokyo jumped 3.1% and saw its highest level since 2008 as BOJ shall pump an equivalent to USD 1,4 trillion into bonds over the next two years. These measures have created a bonanza in the stock and real estate markets. Traders are waiting for a breakthrough of the psychological 100 yen level a dollar. US 10 years Treasurys fell sharply last week in response to the aggressive Japanese measures.

Oil prices which hit an 8 month low on Friday, have recovered. Brent crude is trading at USD 105,55 a barrel, up one dollar from the beginning of the week. Euro/USD has made a strong come back from its low level on 1.2760 last week in the aftermath of the turbulence in Cyprus and the press conference of the European Central Bank (ECB). EUR/USD is trading at 1.3050. British pound, GBP, and other major currencies have also gained ground against dollar. Precious metals led by gold, USD 1575 an ounce, is also trading higher.