Is Japan up for it?

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Data/Event RisksForex Daily Table April 3 2013

  • USD:  The ADP employment data is always seen as a strong indicator of the tone to the employment report at the end of the week, but relationship between the two has been weaker over the past year, so a strong ADP report does not necessarily mean a strong gain in employment when the official figures are released Friday.  As such, if the ADP released is firmer than the 200k expectation, the dollar may be reluctant to rally significantly.
  • EUR: The euro will keep a close eye on the flash CPI estimate at 10:00 GMT.  The market looks for a fall to 1.6% (from 1.8%).  With the German data coming out steady yesterday, it could be a push to see anything lower than this, but the data remains key ahead of the ECB meeting tomorrow.
  • GBP: PMI construction data at 09:30 can sometimes knock the market should it be significantly away from expectations.  The market looks for a 48.0 outturn, from 46.8 previously.

Idea of the Day

So the Bank of Japan starts its two day meeting today.  There is a huge weight of expectation upon the governor Kuroda. To stand any chance of achieving the goal of 2% inflation in two years, he’s going to have to come out guns blazing when results are announced tomorrow.

When you’ve been pushing the QE button as long as the Bank of Japan has, there are few if any surprises left in the policy arsenal.  There are various technical measures and adjustments that can made (scrapping banknote rule, purchasing longer dated bonds), but in isolation none are going to make a major difference. There have been signs that psychology is changing in Japan with the new government, with some firms putting up wages for example (a major thing in an economy gripped by deflation).

As such, the Bank of Japan will have to jump in with both feet tomorrow to keep the change in momentum going. Japan’s biggest failing over the past decade or more has been to shy away from change and back into the old ways and this time, they can’t afford for that to happen.  It’s this ‘all guns blazing’ scenario which is about the only one that could see the yen weaken tomorrow.

Latest FX News

  • CNY:  The PMI data released overnight were modestly stronger, non-manufacturing rising to 55.6 (from 54.5) and HSBC Services rising from 52.1 to 54.3. CNY reference rate firmer at 6.2018, whilst offshore rate (CNH) remaining below 6.20 at 6.1970.
  • JPY:  The two day Bank of Japan meeting starts today, with results announced tomorrow.  Expectations are weighing heavily on the shoulders of the new Governor Kuroda, who has two years to achieve his 2% inflation target. USDJPY broadly steady in Asia close to 93.50.
  • AUD: Trade data for February was better than expected, recording a modest AUD 178mln deficit.  Data had only small positive impact on AUD, steady was broadly steady in Asia session.  The governor of the central bank, Glenn Stevens has been appointed for a further 3 years.

Further reading: 5 Most Predictable Currency Pairs – Q2 2013

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