Yen Volatile As BoJ Tweak Stimulus, Aussie Lower After Job Data

Much volatility was seen in the Japanese yen in Asia today on BoJ's announcement. The central bank unexpectedly increased the size of the asset purchase program by JPY 5T to JPY 45T. However, the size of the fixed rate loan program was reduced by JPY 5T to JPY 25T. That is effectively, the total size of the stimulus program was kept at JPY 70T with just some slight tweaking. The bank also voted unanimously to keep overnight rate unchanged at 0-0.1% range. Regarding inflation, BoJ forecasts inflation to rise to 0.7% in the fiscal year starting 2013, that is, it will stay below its 1% target at least through early 2014. Regarding the economy, BoJ lowered GDP growth forecast this fiscal year to 2.2%, down from prior projection of 2.3%. Separately, Bank of Korea lowered its benchmark borrowing rate by 25bps to 3.00%, the first cut since 2009.

The Australian dollar was sold off steeply on risk aversion, as well as poor job market data. Employment in June unexpectedly dropped -27k in June while unemployment rate rose to 5.2%. The details are worrying as number of full time jobs dropped by -33.5k while part time jobs rose merely 6.6k. The data supports RBA's decision to cut rates again by another 25bps in June. However, one month of data is possibly not enough to warrant further rate cut by the central bank yet. A more important piece of data could be China's GDP data to be released tomorrow.

Overnight, the FOMC minutes for June 19-20 meeting was somewhat a disappointment to investors. There was no lengthy discussion on the options for additional stimulus. Indeed, Fed just noted what a few members viewed that "further policy stimulus likely would be necessary." Several others said additional policy action could be warranted if "economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run persistently below the Committee’s longer-run objective." Meanwhile, six policy makers expect the first rate hike in 2015 and it's getting more likely that the low-rate pledge could be extended.

Looking ahead, ECB will release monthly bulletin today while eurozone industrial production will be featured. Canadian housing price index is expected to rise 0.2% mom in May. US import price is expected to drop -1.6% mom in June. Initial jobless claims are expected to be unchanged at 374k.