USD/JPY Falls Despite BOJ Easing Moves

The dollar plunged versus its rivals on Tuesday on signs other central banks are joining the Federal Reserve in easing monetary policy. The Bank of Japan unexpectedly lowered its key interest rate from 0.1% to a range of 0 to 0.1% and announced a new bond purchase program. The unanimous decision was the first change of Japan’s benchmark rate since December 2008. Meanwhile, the Reserve Bank of Australia unexpectedly left its key rate unchanged at 4.50% for a fifth consecutive month. Investors, enjoying monetary easing, bought bonds, stocks and commodities. Gold rose to a new record high. The S&P 500 penetrated the important 1,150 resistance and gained 23.72 to 1,160.75. The ISM US non-manufacturing index rose more than expected in September, indicating the US economic recovery continues. The EUR/USD reached the highest level since February. The GBP/USD rose for a third consecutive day. The AUD/USD initially fell following the RBA rate decision but later reversed losses. The USD/CAD declined to the important 1.0150 support.

The USD/JPY initially rose following the BOJ rate decision but later reversed gains. The BOJ announced a 'comprehensive monetary easing' and a new ¥5 trillion ($60 billions) bond purchase program. The USD/JPY fell to the lowest level since the September 15 BOJ intervention without any signs of a new attempt to support the pair. We expect another BOJ intervention if the USD/JPY falls further.

Financial and Economic News and Comments

US & Canada

• The ISM non-manufacturing index increased to a higher-than-expected 53.2 in September from 51.5 in August, indicating US service industries expanded for a ninth successive month and at a faster pace, according to data from the Institute for Supply Management. The new orders index increased to 54.9 from 52.4, suggesting new orders grew for a 13th straight month in September and at a faster rate. The employment index rebounded to 50.2 from 48.2, indicating non-manufacturing employment expanded in September after contracting in August. The business activity index declined to 52.8 from 54.4, showing business activity expanded for a 10th consecutive month in September but at a slower pace. The prices paid index slipped to 60.1 in September from 60.3 in August, suggesting prices paid by non-manufacturing organizations for purchased materials and services rose for a 14th straight month but at a fractionally slower rate.

Europe

• Eurozone retail sales fell 0.4% m/m in August, the first month-on-month fall in four months, after a 0.1% m/m increase in July, data from Eurostat showed. June’s gains were revised up to 0.3% m/m and 1.4% y/y. August retail sales rose 0.6% y/y, a fourth consecutive year-on-year rise, following a 1.1% y/y July advance.

• The eurozone composite PMI decreased to 54.1 in September (vs. flash estimate of 53.8) from 56.2 in August, indicating euro-area services and manufacturing industries expanded for a 14th straight month but at the slowest pace in seven months, according to final September PMI data from Markit Economics, stressing that 'solid growth in France and Germany contrasted with renewed contractions in Spain and Ireland.' The services PMI declined to 54.1 in September (vs. flash estimate of 53.6) from 55.9 in the prior month, suggesting the services sector expanded for a 13th successive month but at a 6-month low.
• The German composite PMI fell to 54.7 in September (vs. flash estimate of 54.8) from 58.4 in August, showing Germany’s services and manufacturing sectors expanded for a 14th successive month but at the slowest pace since January, final September PMI data from Markit Economics showed. The services PMI declined to 54.9 in September (vs. flash estimate of 54.6) from 57.2 in the prior month, indicating the services sector expanded for a 14th straight month but at the slowest rate in three months.
• The Markit/CIPS UK services PMI unexpectedly rebounded to 52.8 in September from a 16-month low of 51.3 in August, indicating the UK services sector expanded for a 17th straight month and at a slightly faster pace, according to data from the Chartered Institute of Purchasing and Supply and Markit Economics.
• Switzerland’s month-on-month consumer prices remained unchanged as forecast for a second month in September, CPI data from the Swiss Federal Statistical Office showed. The consumer-price inflation rate was 0.3% y/y, the same annualized pace as in August.

Asia-Pacific

• The Australian Industry Group/Commonwealth Bank performance of services index declined to 45.6 in September from 47.5 in August, showing Australia’s services sector contracted for a fifth consecutive month and to the lowest level since July 2009, according to a report by the AiG and Commonwealth Bank of Australia. The sales index fell to 46.3 from 51.8, indicating sales of services resumed their contraction in September after rebounding in August. The new orders index increased to 47.5 from 47.0, suggesting new orders shrank for a fifth straight month in September but at a slightly slower pace. The employment index decreased to 44.4 in September from 47.0 in August, indicating employment in the services sector contracted for a second month and to the lowest level since January 2010.

• •Australian retail sales grew a marginally less-than-expected 0.3% m/m sa to A$20.46 billion ($19.88 billion) in August, a sixth successive monthly increase, after a 0.7% m/m advance in July, data from the Australian Bureau of Statistics (ABS) showed. Retail sales rose 3.5% y/y nsa, following July’s 4.3% y/y gain.

• •Australia’s trade surplus widened slightly more than expected to A$2.35 billion ($2.28 billion) in August, a fifth consecutive trade surplus, from a downwardly revised A$1.74 billion in July, according to figures from the ABS. Exports declined 2.0% m/m to A$24.71 billion in August; imports fell 5.0% m/m to A$22.37 billion.

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