Daily Morning Report 29.01.2016

The yen fell sharply as the Bank of Japan moved to introduce negative interest rates to fight a “deflation mindset” from gaining hold of consumers.

The Bank of Japan board Friday voted to introduce a negative interest rate policy in a 5 to 4 vote while keeping its monetary base target at ¥80 trillion in an 8 to vote.

The move was aimed at ensuring that consumers move away from a “deflation mindset” and included a statement that lower interest rates on excess reserves would be considered if needed.

Earlier, in Japan, household spending for December rose 1.0% month-on-month, below the gain of 2.0% seen and fell 4.4% year-on-year, compared to a drop of 2.4% expected. As well, National Core CPI rose 0.1% as expected.

In other month-end figures, the unemployment rate held steady at 3.3% and provisional industrial production for December slumped 1.4%, well below the drop of 0.3% month-on-month expected.

Australia reported private sector credit rose 0.5% in December, missing an expected 0.6% gain. Also in Australia fourth quarter producer prices rose 0.3%, missing a 0.6% quarter-on-quarter rise seen.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, gained 0.16% to 98.75.

Overnight, the dollar pushed lower against the other major currencies on Thursday, after the release of disappointing U.S. economic reports, while investors were still digesting uncertainty caused by the Federal Reserve’s latest policy statement.

The U.S. National Association of Realtors said its pending home sales index inched up by 0.1% last month, disappointing expectations for a gain of 0.8%.

The data came shortly after the U.S. Commerce Department said that total durable goods orders tumbled by 5.1% last month, compared to forecasts for a decline of 0.6%.

Core durable goods orders, which exclude volatile transportation items, fell by 1.2% in December, disappointing expectations for a drop of 0.1%. Separately, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending January 22 decreased by 14,000 to 278,000 from the previous week’s total of 294,000, which was the highest since April.

Analysts expected jobless claims to fall by 12,000 to 282,000 last week. On Wednesday, the Fed left interest rates on hold at the conclusion of its two-day policy meeting on Wednesday, after raising interest rates for the first time in nearly a decade in December.

The U.S. economy is still on track for moderate growth and a stronger labor market even with “gradual” rate increases, the bank said without giving any indications on the pace of future rate hikes.