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Japanese Yen Gains against the Dollar after BoJ’s Policy Release

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Dec. 21 2015, Updated 10:55 a.m. ET

Japanese yen gained over 1%

The US dollar-Japanese yen currency pair is inversely related to the Japanese yen. It fell by more than 1% on December 18, 2015, after the BoJ’s (Bank of Japan) monetary policy. There was initially a small uptick after the policy release. However, it subdued and fell towards 121.16 at the end of the day.

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BoJ resists increasing the asset purchase

The BoJ failed to live up to the market expectations on December 18, 2015, in the monetary policy review. The BoJ resisted increasing the bond purchase program from the existing level of 80 trillion yen. There was a slight change in the easing policy. The BoJ set up a program to buy ETFs worth 300 billion annually. It targeted firms that are actively spending on capital expenditure and wages. This extended the maturity of the bonds acquired by the BoJ to 12 years. It increased the exposure to risky assets. The BoJ showed resistance to more easing. Three out of the nine members were against even slight easing steps. This suggests that the BoJ’s Governor Kuroda will face heavy resistance if he proposes to increase the asset purchase program.

Impact on the market

The iShares MSCI Japan Index ETF (EWJ) was trading 1.3% lower at the close of trade on December 18, 2015. On the other hand, the WisdomTree Japan Hedged Equity ETF’s (DXJ) losses were more compounded. It fell by 2.7%.

Japanese ADRs (American depositary receipts) on US exchanges were trading on a negative note. Leisure goods maker Sony (SNE) rose by 2.8%. In the banking arena, Mitsubishi UFJ Financial (MTU) fell by 2.5% while Sumitomo Mitsui Financial (SMFG) fell by 2.6%.

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