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July 29, 2016

BoJ holds additional spur for the country, weak US GDP bodes ill for rate hike outlook.

BoJ holds additional spur for the country, weak US GDP bodes ill for rate hike outlook.

Greenback tumbled to a fresh one-month low against majors as gloomy GDP figures erode outlook for US growth slashing chances FED will raise rates this year. Bank of Japan benights markets keeping the size of stimulus program unchanged resulting in a sharp upsurge of JPY and downward swing in local stocks. USD/JPY fell 103.50 on the announcement of JPY policy rate with Yen growth accelerating after release of US GDP data, touching lower bound of 102.50 level.

Bank of Japan held policy rate unchanged at negative 10 b.p. while announcing an increase in the volume of purchases of securities exchange-traded funds (ETF), retained the goal of increasing the monetary base by 80 trillion yen per year, supporting plans to buy other assets.

Obviously, Kuroda doesn’t want to break off with other central bankers who took wait-and-see position, trying to delay easing as much as possible till potential Brexit fallout shows up. This could provide a respite for traders bidding on risk assets as short-term risk diminished, according to FED.

Although a new chapter of global risk-aversion can be opened by BoE decision in next week which is expected to boost stimulus and cut rates.BoJ decision disappointed investors who had expected more decisive measures after the pledge of Prime Minister Shinzo Abe at the start of this week.

Greenback fell sharply as 2Q GDP growth slowed to 1.2% falling short of medium estimate of 2.5%. Personal consumption grew 4.2% in second quarter below forecast of 4.4%.Crude oil prices extended declines, US Oil fell below $41 to 40.60 level on hedge funds building their bearish wagers, oversupply issues.

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