SYDNEY: The Australian and New Zealand dollars surged on a retreating yen on Wednesday after the Bank of Japan (BOJ) stuck to its super-easy stimulus policy, sending bond yields down globally.
The Aussie jumped 2.0% to 91.36 yen as some in the market had wagered the BOJ would back down on its policy given recent huge selling pressure in the Japanese bond market.
Instead, the central bank said it would make large scale purchases to maintain its -0.5% to +0.5% range for 10-year JGB yields and smooth out the yield curve overall.
However, 10-year yields were still trading up at 0.51% after the decision, suggesting sellers were undeterred and would continue to pressure the ceiling in the belief the policy will have to be abandoned at some stage.
“The policy looks increasingly unsustainable,” said Marcel Thieliant, an economist at Capital Economics. “The Bank (of Japan) bought a record amount of bonds in December and is on track to buy yet another record amount this month.”
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“Indeed, the aim of improving market functioning by widening the tolerance band hasn’t been met,” he said. “It supports our view that yield curve control will be abandoned once a new governor takes over in April.”
For now, the BOJ’s commitment to keeping yields down was a relief to global bond markets and Australian 10-year bond yields fell 8 basis points to 3.57%.
With all the action in the yen, the Aussie was little changed against the U.S. dollar at $0.6985, having found support around $0.6930 overnight. Resistance lies at its recent five-month top of $0.7019 and an August top of $0.7136.
The kiwi dollar was a shade firmer at $0.6436, after touching a five-week high of $0.6458. Major resistance stands at a December peak of $0.6513.
The main domestic event of the week will be Australian data on the labour market due on Thursday, where employment is seen rising a solid 22,500 to keep the jobless rate near its lowest in half a century at 3.4%.
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