BOJ Eases But More Aggressive Approach Next Month

New easing from BOJ; UK retail sales disappointed; Catalan separatists united. Market turns to GDP revision; jobless claims; existing home sales and Philly FED.

Risk aversion stemming from the stalled fiscal cliff negotiations dissipated and USD with JPY weakened throughout the London session. European equities are trading within a narrow range.

The JPY strengthened sharply by the end of the US session and throughout Asia. The BOJ kept the overnight call rate target unchanged at below 0.1% and expanded the asset purchase program by 10 trillion JPY to 101 trillion JPY total. This was the third easing announced in four months and yet more aggressive easing is anticipated at the next meeting on January 21^st. The BOJ also signaled the possibility of setting a higher inflation target. JPY pairs hardly responded and now trade slightly higher.

UK retail sales disappointed as they were flat in November from previous -0.7% while economists predicted a rise by 0.3%. Core sales grew 0.1%. Retail sales constitute about 1/5 of the UK GDP so fears that the economy could shrink again rose. GBPUSD ignored the data and rose to 1.6275.

In other news, Catalan separatists united and promised a referendum on independence from Spain in 2014 and the IMF said it cannot approve bailout terms for Cyprus in current form. It is asking for a debt cut.

The US session kicks off at 8:30 am ET with the third revision of Q3 GDP that is forecasted to rise to 2.8% from 2.7% y/y. Jobless claims are seen at 358K from previous 343K.

Existing home sales are due at 10:00 am and they are expected higher in November at 4.88M from 4.79M and Philly FED index that will flash on screens at the same time is anticipated to improve in December to -2.2 from previous -10.7. 

Patrik Urban