Yen Continues To Recover After BOJ Double Inflation Target

The Japanese yen dipped initially following BoJ's announcement but rebounds again. BoJ's move today was somewhat priced in the markets already and yen would likely recover further in near term after-the-news. BoJ doubled its inflation target to prime minister Abe's 2% and adopted "open-ended asset purchasing method."

The overnight call rate was maintained at 0-0.1% by unanimous vote and the central bank pledged to achieve the new inflation target at "the earliest possible time." After completing the current asset purchase method, from January 2014, BoJ will "introduce a method of purchasing a certain amount of financial assets every month without setting any termination date."

The amount of monthly purchase is specified at around JPY 13T, including JPY 2T of JGBs. Total size of asset purchases is expected to increase by around JPY 10T in 2014 and is expected to be maintained thereafter.

Regarding the economy, BoJ said it remains "relatively weak" with decrease in exports and industrial production. Business fixed investment also showed weakness on the whole. The economy is expected to "level off more or less for the time being" and will return to a "moderate recovery path." Fiscal 2013 growth is expected to be slightly higher than prior projection. Year-on-year CPI change is expected to turn negative due to energy prices and turn back to around zero again.

In the eurozone, finance ministers agreed to release the next tranche of bailout fund of EUR 9.2b or Greece at yesterday's meeting in Brussels. EUR 7.2b would be used for further recapitalization of banks in Greece and EUR 2b would be used to cover the government's budget.

Luxembourg prime minister Juncker said that "we noted with satisfaction that the milestones for January have been achieved." Meanwhile, Juncker also stepped down as head of Eurozone finance ministers and was replaced by Jeroen Dijsselbloem of the Netherlands. Dijsselbloem said that "the main task at hand" is "further restoring the trust in the euro and the eurozone and the economic perspective."

On the data front, Japan all industry index dropped -0.3% mom in November as expected. UK public sector net borrowing is expected to drop to GBP 13.2b in December and UK will also release CBI trend total orders. German ZEW will be a focus in European session and is expected to show general improvements. Canadian retail sales and US existing home sales will be the main feature in US session.