22 January 2013: Asian stocks drop on BOJ easing delay

Bank of Japan (BOJ) at its meeting yesterday delayed to set a 2 percent inflation target and will wait until January 2014 to start Federal Reserve-style open ended asset purchases. This had the immediate effect that Asian stocks retreated and USD/JPY turned around. After trading above 90 yen a dollar, USD/JPY has dropped to 89,18. A closer scrutiny of the BOJ records would, however, be necessary to decide whether this represents a more permanent change back towards a stronger yen.

The big open question is how the combined fiscal and monetary stimulus presented by the new Abe-government will work. Observers stress that the Japanese Nikkei stock exchange seems overbought. The yen on the other hand does not seem to be oversold. Asia’s benchmark equities index is poised to gain for a third month amid signs the US and Chinese economies are recovering and as Japanese stocks have rallied on Prime Minister Shinzo Abe’s more aggressive stimulus policies.

At the opening of the yearly Davos conference among the world’s leading business and political leaders the sentiment was more upbeat reflecting belief in a turnaround in markets and a bullish attitude towards stocks. In spite of the somewhat confused reports from the BOJ meeting both the South East Asian Pacific, MSCI, Hong Kong Seng and the Shanghai indexes were slightly up. It was a good day for stocks in Europe yesterday while the US markets were closed due to the Presidential inauguration.

Euro/USD trades at 1.3341 slightly up from yesterday, while GBP is under continued downward pressure. Both EURO and USD are up against the British Pound. Prime Minister David Cameron is Wednesday going to deliver his most expected speech on England’s future relation to the EU. Cameron is under strong pressure from EU-critics inside his own party to renegotiate the EU-treaty. The US government is pressing for stabile relations and no changes in England’s relations to the EU. The German chancellor Angela Merkel suffered a setback in local elections during the weekend. With her strong position in the EU and EURO-cooperation this might have a negative long term impact on the Euro.

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