In a quiet day on the economic calendar with not many important economic data releases, the Bank of Japan surprised the markets this morning by reducing its purchase amount of government bonds, prompting the yen to rise appreciably against its counterparts, raising speculation about the start of the Bank of Japan's departure from its massive stimulus policy. Following the move, the yen rose against the US dollar, resulting in USDJPY falling to its lowest level since January 4 at 112.40.
The Bank of Japan has cut its purchases of government bonds with maturities ranging from 10-25 years, as well as those with maturities of 25-40 years by 10 billion yen each. The move follows the Bank's policy of keeping the yield curve unchanged throughout 2017, to support the idea of ending its current monetary policy in view of the improvement in the Japanese economy and rising inflation since the beginning of 2017, which is still below target.
On the other hand, the euro fell against the US dollar for a third consecutive day after reaching a very strong resistance level at the 1.2030 levels, and with stability below it, we may see some corrections to the European currency which may reach levels of 1.1630. Also, the eurozone is experiencing a remarkable economic recovery but inflation figures are still below expectations.
Markets are still skeptical that the Federal Reserve will raise interest rates three times this year like last year, pushing the dollar index to fall sharply to its lowest level since 2015 in the last quarter of 2017 at 91 levels, which was confirmed by Rafael Bostick, Reserve Governor of Atlanta and a voting member of the FOMC, when he said that raising rates twice this year would be enough.
Oil has reached levels not reached since May 3, 2015 at 62.53, which is a strong resistance, and if prices can overcome it we may see crude oil heading directly to the next resistance level at 67$ per barrel. The gains came after the extension of
OPEC's cut-off agreement and the decline in drilling activity in the United States, which gave enough support for prices to rise.
