Yen Dives After BoJ Added Stimulus

Yen was steeply sold off in Asian session today as BoJ announced to double the size of its asset purchase program. USD/JPY took out an important near term resistance level at 79.03 which confirms completion of recent fall from 84.17 and confirmed the underlying bullish outlook. EUR/JPY and GBP/JPY also strengthened, in particular, with GBP/JPY jumping through 128 level today. Yesterday's pullback in EUR/GBP helped sterling outperformed Euro. But the relative strength could very much depends on today's BoE minutes. Nonetheless we'd continue to expect European major currencies to outperform commodity currencies in near term. Meanwhile, yen would underperform dollar and would be the weakest one.

The BOJ accelerated the pace of monetary easing by doubling the size of asset purchases, in addition to leaving the uncollateralized overnight call rate at around 0 to 0.1%. Slowdown in global economic growth and recent tensions between China and Japan over territorial dispute are expected to delay Japan's recovery as exports growth would be affected. According to the central bank, the move is expected to 'help ensure that Japan's economy resumes a sustainable growth path with price stability'. The move came in earlier than market expectations, sending Japanese yen lower, and Nikkei stock index and cash bonds higher.

Some Fed officials offered their view on monetary policy after Fed's open-ended QE3 announcement last week. New York Fed President Dudley stated that the Fed's new measures aimed to speed up the recovery of the employment market and whether the QE3 would be extended beyond year-end will depend on "whether we have seen a substantial improvement in the labor market outlook in the interim and any further evidence about the costs and benefits of continuing such purchases". He added that a decline in unemployment rate with a drop of participation rate would not qualify as an improvement. Meanwhile, Chicago Fed President Evans, the known dove, said US needs a "more resilient economy" and hinted the bond purchase program would likely extend after this year as he did not expect to see sufficient improvement by year-end. On the other hand, Richmond Fed Lacker said that monetary policy alone is "unable to offset all of the ways in which various frictions impede the economy's adjustment to various shocks." Lacker was the only dissenter at this month's meeting on reason that more stimulus "runs the risk of rasing inflation".

On the data front, New Zealand current account deficit came in larger than expected at NZD -1.797b in Q2. Australia Westpac leading indicator rose 0.4% mom in July. BoE minutes will be the major feature in European session together with Swiss ZEW expectations. From US, new residential construction and existing home sales will be released.