Tuesday 14 February 2012

BoJ injects JPY10trn - our NAV only jumps by 0.5%

The market reaction to last nights announcement of massive Yen QE is absolutely absurd. A meagre +40pips on the USDJPY prices in only a fraction of the 10trn + commitment to 1% sustained inflation.  
 
Plus, it's not as if these are idle threats. If the past is any indication of the future, the BoJ will likely follow these indications to the letter and buy any amount of JGBs. Indeed - in setting such a clear cut goal as inflation targting, the Ministers' hands are tied not only in writing but also by the stubborn Japanese culture that has seen the Bank fight the market over the last decade. We finally add the BoJ to the list of countless central banks that are in the process of performing unprecented money printing - swelling in size and crowding out private markets in the process.
 
Having undergone considerable pain in this short JPY trade, first initiated on 27th Jan, it is tempting to take off the entire position now and bank the gains. However, we shall patiently wait for the US open today and expect the full move to become apparent. If not, a pullback may be on the cards as strong resistance at 78.20 is felt.
 
We remain short of EURUSD and long of XAUUSD (Gold).

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