Bank of Japan surprised the markets overnight by lowering interest rate to negative for the first time in the economic history of japan. This is an unprecedented event which no economist/Analyst saw it coming. Most analysts were expecting an increase in the level of Stimulus.
According to Bank of japan, Negative rates are needed in other to stimulate economic growth thereby increasing demand and pushing inflation towards its target. The Bank also left the door open for a possible rate cut if there is any need for it. Inflation target was also pushed forward to first half of 2017. This is due to a continuous fall in oil prices. BOJ also made it clear that negative rates will not hurt business but rather help portfolio re-balancing
Market reacted to this surprised move by bank of japan in different ways. USDJPY rallied from the lows of 118 to touch 121.4 level while Eurusd dropped from the highs of 1.0960 to 1.088 level. It will be recalled that Japanese Yen has been really strong over the past couple of months. USDJPY has been selling off from the highs of 125 in September to trade at 116 in January. With the intervention of Bank of Japan, the currency has rallied from the lows back to 121 again.
If markets closed later tonight below 121.46, we might see prices return back to the lows of 118 again. Therefore, bulls need to maintain prices above 120.00 for now.
Later today, the US GDP is an important economic data to watch. market is expecting a GDP figure of 0.8% which is a downward revision from the previous quarter. Eurozone CPI figure will also be released later today. an inflation figure of 0.4% is expected, a revision from 0.2%