Markets Cheer BOJ Easing But US GDP Data May Cool Optimism

Talking Points:

Yen drops as Bank of Japan shocks markets with negative rate policy
Australian, NZ Dollars follow stocks higher on firming risk appetite
US Dollar may rise as sentiment sours if US GDP data outperforms

The Japanese Yen underperformed in overnight trade after the Bank of Japan unexpectedly introduced negative interest rates into its monetary policy framework. Policymakers adopted a three-tier system akin to that of Switzerland, Sweden and Denmark: a portion of deposits at the BOJ will earn interest of 0.1 percent, the next layer will earn 0.0 percent, and the final component will be subject to a rate of -0.1 percent.

The expansion of monetary stimulus helped boost risk appetite, sending the sentiment-linked Australian and New Zealand Dollars higher alongside Asian stock prices. S&P 500 futures registered a similar response and continue to point higher ahead of the opening bell on Wall Street, hinting that the upbeat mood is poised to carry through into the week-end.

The release of fourth-quarter US GDP figures threatens risk-on follow-through however. Output is seen growing at an annualized pace of 0.8 percent, a marked downtick from the 2.0 percent recorded in the three months through September 2015.

A soft print may pass with relatively little fanfare considering the already significant downgrade of Fed rate hike bets in recent weeks. An upside surprise that clashes with the priced-in status quo is likely to produce a more pronounced response, forcing portfolio readjustment that undermines risk appetite and boosts the US Dollar.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

21:45

NZD

Building Permits (MoM) (DEC)

2.3%

–

2.4%

23:30

JPY

Jobless Rate (DEC)

3.3%

23:30

JPY

Job-To-Applicant Ratio (DEC)

1.27

1.26

1.25

23:30

JPY

Overall Household Spending (YoY) (DEC)

-4.4%

-2.5%

-2.9%

23:30

JPY

Natl CPI (YoY) (DEC)

0.2%

0.3%

23:30

JPY

Natl CPI Ex Fresh Food (YoY) (DEC)

0.1%