[LFX]

Overnight, the BoJ decided to keep its policy rate unchanged at 10bp and expand its list of eligible collateral for refinancing operation to include loans to the central government and municipalities. This should benefit regional banks. At the regular press conference, Governor Shirakawa declined to comment on the recent the outsized increase in intermediate bond yields.

Separately, the RBA cut rates by 25bp to 3.0%. The market was discounting a larger 35bp cut going into the announcement. The statement accompanying the RBA’s decision is fairly neutral, noting that ‘considerable economic policy stimulus is in train in most countries’ and that ‘there are tentative signs of stabilisation in several countries, including China’. The Australian government also announced fiscal spending on a broadband network. The Australian Bank Bills strip sold off around 5bp in a steepening mode, helping AUD/US$ approach the highs seen at the start of the year.

Trade recommendation: remaining long AUD/JPY for an initial target of 76.