USD/JPY: Little Activity Ahead Of ECB

 | Jan 22, 2015 11:46AM ET

The Japanese yen is showing limited movement on Thursday, as the pair trades just under the 118 line in the European session. In the US, today’s highlight is Unemployment Claims, with the indicator expected to dip to 301 thousand. The only Japanese event on the schedule is the BOJ Monthly Report, a minor event.

As expected, the BOJ held the course with its stimulus program and stated in its policy statement that it would increase base money at a pace of JPY 80 trillion each year. This gave a boost to the yen, as many market players were expecting additional stimulus from the BOJ, given the weak economy and lack of inflation. With oil prices continuing to drop, the BOJ may be forced to reconsider additional stimulus steps in order to avoid a recurrence of deflation, which hobbled the Japanese economy for years.

As the markets nervously eye the ECB policy meeting later on Thursday, is the euro’s inactivity the calm before the storm? It appears that the ECB will flash its trump card and implement a QE program. However, now that a QE is likely priced in, the question remains what will be the size of the program? The markets are anticipating QE of between EUR 500-600 billion, but some market players are saying that the ECB could go as high as EUR 800 billion. Traders should be prepared for some volatility in the currency markets after the announcement.