BoJ Cuts Rate 20 Basis Points: Profit Taking Likely Unrelated

The Bank of Japan cut rates for the first time in seven years: 0.5% –> 0.3%, which is said to have disappointed the market and thus caused the sell-off in Tokyo (Nikkei 225: -5%; Topix-1: -3.6%). Not quite. The market had already opened lower and traded down throughout the entire session until the BoJ announcement.

It’s hard to believe there was genuine disappointment with the BoJ, which in likely, largely trying to ease pressure on the yen, made a shortsighted decision, as the title above states, and caved into market pressures. Ironically, and perhaps linked to the so-called disappointment, the yen appreciated nearly 6 points against the euro and almost a full point against the US$.

In summary, Japanese stocks were due for a retreat, after racing up some 26% in the three prior sessions. In addition, Monday is a national holiday (Cultural Day) and thus another reason to take profits. Economic data released earlier in the day showed an interesting dip in unemployment, but a multi-year low in the number of jobs-to-job applicants.