Japanese May Reign in Spending Package as Yen Soars - According to Orix Capital Trading

LONDON, Aug. 11, 2016 /PRNewswire/ -- The yen shot to a fortnightly peak against the euro and picked up 1.3 percent versus the greenback on Wednesday as analysts lowered their expectations of how much easing the Japanese finance ministry will pour into the nation's faltering economy.

The country's central bank, The Bank of Japan (BOJ) is set to buy up a large amount of government stocks and bonds, according to a survey of economists conducted by news agency Reuters. In their meeting ending on Friday they are also expected to drop interest rates below zero.

The Japanese government, meanwhile, is getting a stimulus package ready that most observers think will be around 25 trillion yen, with direct cash stimulus set to be much lower than that figure. The details of the stimulus will be released at the start of next month.

"The government pressure on the BOJ that we have seen previously, encouraging them to initiate easing methods, seems to be getting dialed back now," said Orix Capital Trading Executive Vice President of Portfolio Management, Robert Barkley.

"That has an effect on investor sentiment. Expectations of a large financial injection are lowered, and that will push the yen up. The larger exporters won't be please as a higher yen makes their products a lot less attractive to foreign buyers."

The yen had previously weakened for the past month amid rumors the government was preparing huge monetary and fiscal easing to stave off deflation. There was even talk in economic circles of helicopter money, where government debt would be taken on by the BOJ, although Tokyo continually denied that was part of the plan.

In the UK, Bank of England Monetary Policy Committee chairman, Martin Weale, said he no longer opposed easing techniques and the pound dropped nearly 3 percent versus the yen and fell to a two week base against the euro.

Sterling continued its fall versus the greenback to $1.3162 at the end of trading on Friday with many analysts believing there is no end in sight after the British public voted to exit the European Union in June.

The Federal Reserve is expected to remain neutral on their fiscal policies in its meeting that finishes Thursday. Signs from the markets all indicate that traders are betting the Fed will make no change in interest rates, with chances of a hike at the end of the year rising.

The next BOJ meeting is set for August 3^rd and Japanese market traders will be keeping an anxious eye on announcements.

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SOURCE Orix Capital Trading