Central Banks Main Market Focus

Central banks around the world are changing their policies quite considerably in the wake of recent worldwide economic recession. The typical example is the Bank of Japan who started their open ended asset purchase program in April 2013 instead of originally planed 2014. The decision was taken by their new president Kuroda who initiated an aggressive monetary policy. His target is to achieve the inflation rate of 2% in during next two years.

The bank of Japan pumps liquidity through Government bond purchases into the system under two important programs. The first program is the Rin Ban introduced way back in 1996. Under this program, the BoJ buys long term government debts worth 2.6 trillion yen of Japanese government bonds from the regular market every year. 

The second is the asset purchase program which is a monetary easing tool and in place since 2010.  In this particular program, the Bank of Japan buys the government assets for up to three years until they mature. Similarly, it also buys trust funds and corporate debts and invests them in property and stock market. Under this program, the Bank of Japan guaranteed to supply 101 trillion yen till December, 2013.

It was actually the meeting held by the Bank of Japan in April that actually influenced policies of all the Central Banks. Immediately after the meeting, the Bank of England and other major European banks also discussed the results of that meeting in their respective meetings. Similarly, the all-important nonfarms payroll report issued during the same time period also became the controlling factor in continuous monetary easing in United States of America.

Furthermore, it appeared as the members of Bank of England were in no hurry as they wanted to observe the impact of other programs on the economy. This fact was evident from the MPC minutes and this lead people to believe that Bank of England is going to hold rates and policy. However, the below average printing performance of the UK manufacturing company PMI proved to be the last blemish on the UK's economy.

As a matter of fact, the positive activities of traders make Great Brittan Pound to shoot over 100 points within matter of minutes. As a result, the current level of 375 GBP jumped to 400 GPB and this rise was stimulated by the ads that moved in favour of GBP.

On the other hand, data from other European countries continued to disappoint traders. The individual as well as Eurozone manufacturing PMIs failed to foresee the situation except for Germany. Similarly, the rate of unemployment in Eurozone increased to record 12%. Although, it was not a comprehensive data yet it indicated quite successfully that Eurozone has struggled in all fields including, economy, EMU perspectives and Banking sector.

Similarly, the Reserve Bank of Australia holds policy as well as rates but traders were expecting this move. According to the statement of Glen Stevens, international financial conditions were very conducive, the threats to international growth rate had disappeared, Australia was growing as expected and the peak in resource investment was about to be achieved. The Australian dollar remains strong because the continuous easing process of RBA is positively impacting the Australian economy.