BOJ Declare Open Ended Asset Purchases – Reaction and Charts

After a month of bullish rhetoric, BoJ finally delivered the promised “strong actions” during its latest announcement. Previously, BoJ mentioned they will continue to ease “until the 1% inflation target is in sight”. With the latest upgrade from 1% to 2%, we can expect BoJ to continue easing for a considerable amount of time.

A summary of BoJ announcement as follow:
– Inflation “goal” changed to “target” and upgrade from 1% to 2% to be achieved “as soon as possible”
– Open ended asset purchases Model with following 2014 Monthly targets
Total amount – 13 Trillion Yen
   JGBs: 2 Trillion Yen
   T-Bills: 10 Trillion Yen

– Overnight rate maintained at 0.0 –  0.1%

Click here for full BOJ announcement

Hourly Chart

Yen weakened for only a brief moment following the announcement. Price managed to punch above 90.0, but ultimately failed to break above the consolidation range of last Friday. After the initial rally, Yen strengthened again, something that is all too common when it comes to BoJ intervention: 1) BoJ officials saying they wish to ease (check) 2) Yen starts to weaken before announcement as speculators “front run” BoJ (checked) 3) Buy the rumor sell the news and Yen strengthened post announcement (checked). Current price has broken the 89.3 support with seemingly ease, with prices attempting to move up once more. Keep a look out for price action around 89.30 for any bearish confirmation, or for a move back to the 89.30 – 90.30 consolidation zone.

Weekly Chart

Price on the weekly chart appears to be extended, with today’s movement potentially forming the first bearish weekly candle since Nov ’12. 88-89.3 remain as support zone. A break below exposes trading range between 75 – 84, while the ability to hold onto prices can potentially lead us higher back to 93 levels. Though price does look heavy on both Long and Short term charts, it is important to note Yen seasonality that traditionally see USD/JPY peaking towards End Feb/Early March. That being said, BoJ’s intervention heavy intervention so early on could potentially have the impact of shifting the seasonal calendar 1 month early.

AUD/JPY Hourly Chart

94.0 support is threatened following the news, with short-term downside targets ultimately around 92.6 with 93.6 potentially acting as interim support.

GBP/JPY Hourly Chart

With the move, price is trading back below the downward sloping trendline, showing increased bearish momentum. Also, current price is heading towards the 140.5 low after the Head and Shoulders pattern formed early last week. Stochastic is also suggesting price heading lower with readings forming a new peak once more.

Gold Hourly Chart

Interesting to note that Gold prices only rallied slightly despite BoJ’s intention to ease via open ended T-Bills and JGB purchases, which should theoretically push Gold higher, similar to how QEs from FED pushed gold prices higher. However Gold priced in Yen actually became lower, implying that current small bump in XAU/USD is simply a spill-over from the USD weakening from USD/JPY. What this means is clear – market simply does not believe there is going to be any lasting/strong impact of BoJ’s actions, but rather “playing along” with BoJ to weaken the yen until the announcement. Now that is out of the way, we’ll need further catalysts for the market to bite to push Yen crosses further up.

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