Yen prospects

GBP:  The industrial production data is expected to show a flat reading after last month’s better than expected 0.7% MoM gain.

Sterling has received some benefit from better than expected data of late, but has certainly not been keen to run away to the upside whilst the MPC has still seen three members voting for more QE.

See how to trade the British manufacturing production with GBP/USD

USD:  Just wholesale inventories data today, which is not a big risk event for the dollar.

Idea of the Day

The yen nearly 1% firmer after the initial announcement from the Bank of Japan making no major changes at its policy meeting.   There has been some feeling that the BoJ should address the rise in bond yields seen since their initial policy bazooka back in April, with 10 year bond yields having nearly doubled since then. But of course if the market is convinced that the Bank of Japan is going to meet with success, then higher bond yields are natural consequence of higher expected inflation.

This theory held last month, but since then expected inflation (as measures by markets) has fallen dramatically, from 1.8% to 1.35% over 5 years.   Combining this with what we’ve seen on the yen, then the indication is that markets are becoming a little more sceptical on the ability of the Japanese authorities to generate inflation, especially after last week’s disappointing timetable on structural reforms. Unless the dollar falls further out of bed, then this could make the yen a much more difficult play over the summer months, rather than a one-way bet lower.

Latest FX News

USD:   After last week’s very sharp fall in the dollar index, we are seeing a steadier tone emerge so far this week, the market having adjusted expectations lower for the prospect of a tapering of Fed bond purchases as early as this month.  

JPY:   No major shift at the Bank of Japan meeting and no reference to the rise in bond yields. The yen has been firmer as a result, registering some disappointment that there were no more fresh measures. USDJPY was briefly below the 98.00 level as a result, having touched 99.00 early on in the Asia session.

AUD:  Data released overnight showed home loans rising 0.8% MoM in April, whilst the NAB business survey was slightly better than expected.   The Aussie is still limping like a sick kangaroo, this time below the 0.94 level overnight and at the European open.

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