Archived IMT (2008.10.31)

Bank of Japan cuts interest rates by 20-bps, surprising as well as disappointing markets, with the surprise being the actual cut and disappointment being less than expectations of a 25-bps cut. JPY briefly rose across the board as a knee-jerk reaction--dragging USDJPY from 98.50 to 97, but we could see renewed rise in risk appetite and flows in favor of high yielding currencies (GBP, AUD, NZD and CAD) at the expense of the lower yielders (JPY, USD and CHF). The rate cut avoids the BoJ from being the lone G7 central bank from cutting rates and instills confidence as far as global decision making is concerned. From the perspective of actual economic boost, the measure will be largely symbolic. Nonetheless, the BoJ is reluctant from provoking prolonged carry trades by easing substantially. The rate cut may lift USDJPY above the key resistance of 99.00, but is unlikely to exceed 99.70. Interim support stands at 96.50.