BoJ QE addition fails to convince investors
"There are 1200 elephants in a herd. Some have pink and green stripes, some are all pink and some are all blue. One third are pure pink. Is it true that 400 elephants are definitely blue?" That, believe it or not, is one of the questions in Mensa's online "brain workout". Mensa is supposed to be a society for highly-intelligent people. The folk who set its IQ tests are presumably members. And they think some elephants have pink and green stripes. It's a worry.
So is the yen, at least for Japanese exporters. Over the last 24 hours it was the best-performing major currency, strengthening by 0.4% against the pound. Having been encouraged to expect a tsunami of quantitative easing from the Bank of Japan (BoJ) following the Liberal Democrat's return to power, investors were disappointed with the outcome of this morning's BoJ policy meeting. The Bank said it would increase its asset purchase fund by ¥10 trillion to ¥76 trillion (£557bn) and stick to its target of 1% for inflation (the most recent data put inflation at -0.4%). The disappointment stemmed from the BoJ's decisions to add "only" ¥10 trillion to its quantitative easing programme and not to set a more ambitious inflation target.
There was no disappointment about the minutes of the December Monetary Policy Committee meeting. All nine members agreed to keep the Bank Rate at 0.5% for a 46th month and all but one were happy to refrain from any additional asset purchases, at least for now. David Miles voted to spend an extra £25bn on government bonds but it would have been a surprise had he not done so.
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There was no reaction by sterling to the MPC minutes. It bounced around before and after the publication of the minutes but there was no obvious reason for its gyrations. On the day it is all but unchanged against the US dollar, the euro and the Swiss franc. It is a touch firmer against the Canadian, Australian and New Zealand "commodity" dollars and lower against the northern Scandinavian crowns.
The thin sprinkling of economic statistics brought little to the table. US housing starts fell and building permits went up. Canadian wholesale sales increased by a monthly 0.9%. The CBI's Distributive Trades Survey showed UK retail sales increasing by less than expected in December. Gross domestic product (GDP) growth of 0.2% in the third quarter for New Zealand was well below forecast and resulted in the NZ dollar putting in the day's worst performance.
Today brings retail sales figures from Italy, Britain and Canada. The United States reports on jobless claims, existing home sales and revised third quarter GDP growth. The provisional Euroland consumer confidence index comes out at three o'clock and UK consumer confidence at midnight. It is possible that an out-of-line UK retail sales figure could affect sterling but the evidence of recent days suggests it will not.