What is the BoJ to do?

Asian FX remains hostage to the “big dollars” continuing attempt to turn stronger on the one hand and continuing resistance to currency appreciation from Asian central banks on the other. Next week is starting to feel like a big week for the BoJ. It looks like that rising political pressure from the diet could be putting Governor Shirakawa and company on the back foot. It seems that politics is arguing for a compromise with parliament by easing further at its 9-10 April policy meetings. This would be an obvious surprise to the market. However, if they do, it would probably occur as a further increase in its asset purchase program.

Below are some other highlights of the week:

ASIA

• CNY: A surprise jump in the Chinese PMI last weekend has helped the risk complex start the week off on a sound footing (53.1 vs. 51). This release was in stark contrast to the HSBC PMI. Many now believe that the seasonality in the official series has diminished over the past year or so and that the print should be seen as simply a good PMI number. This release probably will not require the PBoC to be thinking about launching any meaningful stimulus any time soon. Equity markets posted small gains in Asia, although China’s markets were closed through Wednesday for a holiday.
• JPY: Now that Japanese exports have finished with buying their domestic currency for financial year end certainly has opened the topside for the currency pair outright. The weaker than expected Tankan survey over the weekend (-4 vs.-1 for Q1) is however going to raise expectations for more BoJ easing at next week’s meeting. The immediate problem with the short yen trade is that everyone has it on.
• AUD: Aussie AiG performance of manufacturing index fell 1.8 points to 49.5 in March.
• KRW: Korea exports were weaker than expected, down 1.4%, y/y, while imports fell -1.2% in March. The trade surplus increased to \$2.3b from a revised \$1.5b in February.
• KRW: Korea’s credit rating outlook was raised by Moody’s Investors Service to positive from stable on the nation’s fiscal strength and improved resilience to financial market turmoil.
• CNY: Another strong Chinese non-manufacturing PMI report has been supporting risk-sensitive currencies and undermining the USD for the most part of the week. It rose to 58.0 in March from an upwardly adjusted 57.3 in February. Even with the seasonal adjustments, the current level of the PMI is historically knocking at the high end of its range. Another factor bullish for risk, despite the Euro-zones periphery concerns.
• CBank: By mid-week there still has be no noticeable Asian central bank intervention in support of the USD.
• AUD: The RBA kept the cash policy rate on hold at +4.25%, and it was no surprise that they also sounded dovish. Governor Stevens and his policy makers judged that it would be prudent to wait for the inflation data before easing. The policy statement said that, “If demand conditions were to weaken materially, the inflation outlook would provide scope for easier monetary policy.” The futures market continues to price in a 75bp ease by year end, a factor that was going to continue to weigh on the currency no matter what. For now, implied short term yields on down along the curve as dealers price in a May easing bias.
• AUD: Aussie retail sales advanced +0.2%, m/m, in February, in line with the consensus forecast, slowing from a +0.3% rise in January.
• JPY: Japan’s labour cash earnings rose +0.7%, y/y, in February after falling -0.9% in the prior month. The monetary base fell -0.2%, y/y, in March following a +11.3% rise in February, and this despite the introduction of new-asset purchase measures.
• AUD: Aussie trade balance disappointed for the second consecutive month, reporting a deficit -AUD0.5b in February vs. the consensus forecast for a +AUD1.1b trade surplus. The January trade deficit was also revised higher to -AUD0.9b from -AUD0.7b previously. The weaker-than-expected data contributed to AUD weakness, on the coattails of the FOMC-driven USD rally and compounding recent fears of Chinese slowdown, helping push the Aussie through the psychological 1.03 level.
• CNY: China announced that it will raise the total quota for its qualified foreign institutional investor scheme (QFII), by \$50b to \$80n.
• CNY: Chinese Premier Wen Jiabao said that the government needs to allow more private capital participation in China’s financial markets in an effort to break the “monopoly” of the state-owned banks.
• PHP: In the Philippines, CPI inflation fell to +2.6%, y/y last month from+2.7%. With global energy prices remaining elevated, do not expect the BSP to ease policy any time soon.
• NZD: The Kiwi ANZ Commodity Price Index fell -1.7%, m/m, in March after being unchanged in February.
• CNY: The HSBC Services PMI fell slightly to 53.3 in March from 53.9 in February. This is again opposite to the rise in the official non-manufacturing PMI to 58 in March from 57.3 in February.
• IDR: It was reported that Indonesia will impose a +25% export tax on coal and base metals this year, which would be increased to +50% in 2013. Obviously this will hurt exports. This may lead to a further deterioration of the current account balance and it should be negative for IDR.

AMERICAS Week in FX

EUROPE Week in FX

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