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Looking at Tonight’s BoJ Meeting

Written by A Forex View From Afar on Monday, December 01, 2008

The Bank of Japan has scheduled an emergency meeting for tonight, in response to the strains in the corporate debt market.

This comes, after at the last BoJ meeting, the governing council asked the bank’s members to study the possibility of extending the collateral base to also include corporate debt. The market is expecting this to be one of the main announcements the bank will make.

The decision to include corporate debt will have a positive effect on the Japanese economy. Banks will be able to raise liquidity from the central bank, using corporate loans, which make up a large part of the financial system. As a consequence, the corporate debt market would once again become liquid, making loans less costly for firms.

In the past week, the Governor of the BoJ said, in a number of speeches, that the cost of corporate debt is rising at a very fast pace, not seen since the deflationary period a decade ago. In addition, the Japanese finance minister also announced the economy may experience deflation in the coming years; something that the BoJ has battled since the mid 1990’s but has never really succeeded.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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