Not to be undone by the easing efforts from the Fed and ECB, the Bank of Japan decided to do some extra easing on its own. Yen pairs swung up on the initial reaction to the increased BOJ easing but lost the gains later in the day as the Yen rallied on doubts that the new QE will spur growth.
The Bank added 10 trillion Yen (around 127 Billion US Dollars) to its QE effort, expanding the asset purchase program to 55 trillion Yen from 45 Trillion. The main rate was kept in the 0-0.1% range as expected. The Bank of Japan will use 5 trillion Yen to buy Japanese government bonds and the other 5 to buy Treasury bills. The extra easing was not expected, only 5 out of 21 economists surveyed by Bloomberg expected the move.
The unexpected move lead to an initial rally in the Yen pairs as the Japanese currency weakened. We’ll use the GBP/JPY as example of the price action today, see the chart below. The decision came out at 23:44 NY Time.
The pair was trading at 127.80 at the moment of the announcement. The immediate reaction to the news lead to very spiky price action. The GBP/JPY rallied to over 128 but quickly fell back 20-30 pips before closing the first minute 15 pips higher at 127.95. It then proceeded to gain further, reaching a high of 128.81 around midday. From that point onward it started falling, it fell close to 200 pips, reaching a low of 126.93 before recovering slightly before the end of the trading day. The pair closed the day at 127.13, 87 pips lower from its open at 128.00.
The similar up and down pattern was repeated in all the Yen pairs. The EUR/JPY initially rallied over 100 pips on the news reaching a high of 103.62. It fell over 150 pips from that point, closing the day 55 pips lower from where it opened.