Bank of Japan maintained its overnight interest rate at 0.10% - the lowest in G10 universe – but removed some key stimulative measures which triggered a small rally in the yen. The central bank stated that it would end its outright purchase of corporate bonds and commercial paper in December noting that “it becomes necessary to adopt the most effective method for money market operations that conforms to changes in financial markets.

The yen was also helped by an impressive decline in the unemployment rate to 5.3% from 5.6% the month prior - the third such monthly improvement in a row. The applicant to job ratio also inched higher to 43 from 42 the period prior but it remains at multi year low levels and suggests that labor markets continue to be sluggish but have clearly bottomed out.

Tonight’s eco data and concomitant actions by the BOJ indicate that Japanese monetary officials are beginning to see signs of stabilization in the Japanese economy  after it experienced the worst contraction in the post war era earlier in the year. The BOJ is likely to remain cautious for another quarter at minimum, but its gradual retreat from the money markets suggest that it no longer feels that economic conditions merit emergency measures.  

USD/JPY drifted below the 91.00 handle on the more hawkish tone of the BOJ policy statement, but for now appears to be rangebound  between 90.00-92.00. The yen strengthened at the start of the week on risk aversion flows as key carry trades against the Aussie and the kiwi were unwound, but may trade towards the 92.00 figure once again if the risk FX remains bid into the North American open.