As we started reporting last night, the yen suffered a rollercoaster ride for more than two hours today as investors chased various media trial balloons and reports – many conflicting – about prime minister Abe’s stimulus package and debt-sale plans, ahead of this week’s much anticipated BOJ announcement.

For those who slept through the night’s fireworks this is what you missed.

Sequence of events:

Initially, the Yen was lower for the early part of the morning before extending decline by 0.6% to 105.93 vs USD after FNN reported Abe will give details of stimulus package this afternoon

  • USD/JPY buyers scrambled to cover positions on FNN report, with leveraged and intraday accounts leading rush to buy dollars, according to a trader

The Currency then extended the drop to 106.54, taking the day’s losses to as much as 1.8% after the WSJ reported that the government was considering selling 50-year debt

  • A WSJ report of 50-year debt sale raised speculation of “helicopter money” policy again, according to Takenobu Nakashima, quantitative strategist at Nomura Securities

However, a prompt Ministry of Finance denial of the 50-yr bond-sale plan led yen to pare losses to 105.48, near levels before FNN report

  • Two-way price in USD/JPY on $50m trades widened to 5 pips from 3 pips by largest Japanese banks, according to an Asia-based trader
  • Clients and market makers were frustrated by the debt sale report as it was denied by MOF, the trader added

Yen briefly steadied as the market awaited Abe’s scheduled briefing in southern Fukuoka

  • Initial headlines from Abe’s speech didn’t mention stimulus
  • Abe then said the measures would be compiled next week and the lack of details supported the yen briefly before the PM finally revealed the 28 trillion yen headline figure, sending yen tumbling again to 106.13, still stronger than than its weakest point earlier

As of this moment the USDJPY was back to 105.40, near the start of the session, as if the rollercoaster ride never happened…

 

But a bigger problem than the surge in algo-driven volatility is that now most of the “surprise” factor both Abe and the BOJ may have had has been priced in. Worse, while Abe has shown the size of the economic package to be a bit bigger than previously thought, BOJ won’t be able to judge the impact on the economy with just the headline figure, said Osamu Takashima, a Citigroup FX strategist.

And even more troubling is that the final stimulus plan may be far less than expected: Japanese Prime Minister Shinzo Abe’s plans for more than 28 trillion yen ($265 billion) in stimulus may have a limited impact on the economy, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.  Maruyama said because “actual spending” may not be as large as the 28T yen number, “there may be limited impact on boosting the economy.” “The size of the package looks magnified,” Maruyama said.

If so, the USDJPY may plunge moments after the BOJ has no choice but to disappoint on Friday when it reveals its latest stimulus. It remains to be seen if US stocks will follow.

Source: BBG

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