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SD/JPY tumbles as BOJ surprises market by keeping rates unchanged

By Margaret Yang, CMC Markets

Equities –The Nikkei 225 tumbled 4% to 16,735 at 11am Singapore time, after the BOJ announced that it will keep interest rates at -0.1% and its asset purchasing value at 80 trillion yen. USD/JPY dropped as much as 2% to 109.00 right after the announcement.

This shows that too much expectation of further easing had been priced in and the BOJ has surprised the market by taking no action. From the speed and magnitude that the market fell, markets may have overreacted to the news and the volatility will probably narrow down later on after the market calms down.

The rest of Asian markets are affected as well, falling from today’s highs. The Shanghai Composite is down 0.68% and the Hang Seng Index erased earlier gains of 1.2%. The Straits Times Index came off 0.4% from this morning’s high.

Differing from the FOMC, which usually gives market sufficient time to prepare before making a move, the  BOJ never fails to surprise us. It is probable that the central bank is temporarily running out of tools to stimulate the economy, or they need more time to observe and assess the impact of negative interest rates. Let’s keep an eye on it.

Japan 225- Cash (1 Hour Chart)

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USD/JPY (1 Hour Chart)

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Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.