BoJ Kicks Off New Phase Of Monetary Easing, Yen Sharply Lower

The Japanese yen dropped sharply today after BoJ governor Kuroda announced a radical policy overhaul in his first meeting. He stated that it will "conduct money-market operations so that the monetary base will increase at an annual pace of about 60 to 70 trillion yen ($645 billion to $755 billion)." The BoJ will also combine the two bond-buying program to buy JGBs with maturity up to 40 years. The bank will also revert to open-ended asset purchase, and buy JPY 7T in long-term JGBs per month, with bond holdings rising at an annual pace of JPY 50T. ETF purchase will be raised by JPY 1T, and REITS by JPY 30b annually. The USD/JPY cross powered through 94 level after the announcement and is now heading back to 96.7 near term resistance. Strong strength is seen in all yen crosses in general.

Euro is steady elsewhere, as markets wait for the ECB rate decision and press conference. The ECB is widely expected to keep rates unchanged at 0.75%, but there are some speculations that it will introduce measures to inject additional liquidity to the interbank market. ECB president Draghi is expected to address the issue in Cyprus as well as political uncertainties in Italy. Recent data confirmed that the eurozone recession is still stuck in Q1, and is likely extend into Q2. The markets will scrutinize Draghi's messages to see if he would turn too dovish or hint at additional easing moves later in the year. The BoE is due to announce its rate decision today, and is expected to keep them unchanged at 0.5%. Opinions on whether the BoE would expand the asset purchase program are mixed. We tend to believe that the BoE will keep the program unchanged at GBP 375b, but won't be too surprised if it expands the program by an additional GBP 25b.

In the U.S., San Francisco Fed Williams said that Fed could "meet the test for substantial improvement in the outlook for the labour market by this summer" and by then, the Fed would "start tapering our purchases" and even "end the purchase programme sometime late this year." Meanwhile, St. Louis Fed Bullard said that the Fed is "in no hurry" to reassess the open-ended asset purchase program, and can "take our time to make sure the data comes in as strong as we think it will." Fed governor Tarullo said "benefits outweigh the costs" of continuing the bond purchases, and he'd prefer to see "some good healthy peaks that have job creation well above the rate of new entrants into the labor market" before supporting curbing of the QE program.

On the data front, Australia building approvals rose more than expected by 3.1% mom in February, while retail sales also beat expectation, rising 1.3%. The eurozone will release PMI services final and PPI data. The U.K. will release PMI services. The U.S. is due torelease initial jobless claims later today.