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Bank of Japan Makes A Move – Ball is in the Federal Reserve’s Court Now

By Jim Williams

U.S. investors woke up this morning to news that the Bank of Japan (BOJ) introduced a zero interest-rate target for 10-year government bonds to step up its fight against deflation.

Japan’s central bank announced it is keeping rates unchanged at -0.1 percent. The BOJ says it will modify its policy framework, marking the latest attempt to boost prices and economic growth.

Among the changes, the BOJ said it would introduce yield curve controls, eliminate the maturity range of its bond purchases and abandon its monetary base targets. The bank also left the door open that cutting rates further remained an option.

“Investors are showing a positive response as they got the feeling that the BOJ will do whatever it can do to tackle deflation,” Kengo Suzuki, chief foreign exchange strategist at Mizuho Securities, told the Wall Street Journal.

The U.S. dollar jumped to from 101.90 yen to 102.60 shortly after the BOJ announcement.

Copper opened at $2.15 a pound, but that price could quickly change after this morning’s announcement and depending on the Fed later today.

The U.S. Federal Reserve is expected to follow suit with the BOJ and hold interest rates unchanged in its meeting this afternoon. Many experts believe a rate hike is imminent in December, which would strengthen the dollar and pressure metals.

While all eyes are on today’s bank announcements, those following copper prices know the key driving factor behind the red metal still resides in China. A real estate boom in China and stronger than expected factory activity over the traditionally slow summer season has given copper investors a sliver of hope.

“With summer coming to a close, copper demand conditions in China have improved markedly,” JP Morgan said in a report. “Orders for low voltage copper cables used in real estate construction have increased and production at major copper wire rod companies has stabilized.”

Will Adams at FastMarkets.com continues the summer theme, “Copper’s correction appears to have run its course and after a few days of consolidation, buying has returned. Given the short-selling of late, there may now be room for short-covering as well as bargain hunting now that the summer lull has passed.”

Frequent contributor Andrew Hecht from Seeking Alpha weighs in on commodities in general, including copper, “Commodities appear to be turning, and a bull market could be on the horizon. Inflation will eventually cause raw material prices to move higher as demand is on the rise. Every portfolio should own some commodity exposure at current prices.” You can read more about this and find all of Andrew’s articles here.

In other commodity related news – China’s metals industry association and aluminum fabricators will testify at the U.S. International Trade Commission’s hearing in Washington on September 29. We will follow this meeting and today’s bank announcements as well as anything else playing a roll in the price of copper.



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