BoJ Provides No Dollar Favors

The BoJ has disappointed the market expectations for aggressive easing. Despite announcing a +JPY10t increase in its JGB purchase program, an offsetting reduction in the target for fixed-rate loans to banks, saw a net increase in the APP in line with expectations. More importantly, Governor Shirakawa did not stop there; he and fellow policy makers have indicated that the new current measures should be sufficient to meet the inflation objective of +1%. It is this rhetoric that has diminished somewhat market expectations that Japanese policy makers had embarked on a series of APP increases and large-scale QE action. Are the BoJ taking the foot off the gas too soon? Already stating that they have no intention of increasing stimulus each month, coupled with the absence of US yields moving higher, will probably equate to a rather limited USDJPY strong play.

Below are some other highlights of the week:

Asia

• CNY: Chinese HSBC Flash PMI rose slightly to 49.1 this month from 48.3 in March, but was still below the 50 mark for expansion. Are we seeing the trough for growth in China being made?
• EU: Results from last weekend’s G20/IMF and World Bank meet saw the G20 pledged \$430b to boost the IMF funds. The US declined to contribute while Canada proposed making it harder for Europe to tap aid.
• SGD: Singapore CPI inflation accelerated to +5.2%, y/y, in March from +4.6%, y/y, in February, mostly on the back of higher transport prices. The market is betting that this should keep the MAS on its tightening stance.
• AUD: Aussie PPI unexpectedly fell -0.3%, q/q in Q1, decelerating from a +0.3% rise in Q4 2011.
• AUD: The Aussie rates market has raised its pricing for RBA rate cuts by +7bp to +32bp for next week’s meeting after the country’s inflation data. Australia’s headline CPI rose +0.1%, q/q, in Q1 after a flat Q4, much weaker than the consensus forecast for +0.6%. The core or underlying inflation came in well below the +0.6%, q/q, consensus at +0.35%.
• JPY: Japan’s corporate service price index fell -0.3%, y/y, last month following a -0.6% decline in February.
• NZD: The Kiwi’s posted a small monthly migration gain of +130 (sa) in March, after a revised net loss of 300 in February.
• INR: S&P shifted the outlook on India’s BBB- ratings to ‘negative.’ In plain language, the country could drop out of investment grade. S&P focused on India’s widening current account deficit and Governments difficulties in implementing policy measures.
• KRW: Korea’s consumer confidence rose to its highest level in 12-months to 104 this month from 101 in March.
• NZD: The RBNZ kept the policy rate unchanged this week, but signaled a dovish shift in response to the NZD strength. Previously Bollard stated that sustained currency strength “reduced the need for future increases in the OCR”. This week their stance has become a tad firmer, stating that “should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings”. Is this opening the possibility for even cutting rates should the Kiwi strength continue?
• AUD: Aussie Conference Board Leading Index was unchanged in February, following a revised +1% increase in the previous month.
• KRW: Korea’s GDP rose +2.8%, y/y in Q1, below the consensus forecast for +3.0% print. Analysts note that net exports were down about -5%, q/q, in Q1 suggesting external demand is lagging.
• JPY: The BoJ has disappointed the market for aggressive easing. While the central bank announced a +JPY10t increase in its JGB purchase program, there was an offsetting –JPY5t reduction in the target for fixed-rate loans to banks. As such, the net increase in the APP just +Y5t, in line with expectations.
• JPY: Japan IP rose less than forecasted in March, gaining +1%, m/m, after a +1.6% decline in February. Core-CPI rose +0.5%, y/y in March, following a +0.3% increase in February.
• JPY: Retail sales climbed +10.3%, y/y, in March after a revised +3.4% increase in February, while household spending rose +3.4% accelerating from a +2.3% from the previous month.
• JPY: Japanese jobless rate was +4.5% last month, unchanged from February.
• CNY: China’s industrial profits rose +4.5%, y/y, in March, rebounding from the first January-February decline in three-years.
• KRW: Korea’s current account surplus rose to +\$3b in March from +\$0.5b in February, supported by a recovery in the goods trade balance.

AMERICAS Week in FX

EUROPE Week in FX

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