Asia and USDJPY

Market News & Views

Yesterday, the fixed income markets started off poorly but got better later in the day. The yield for the 10-year Bund (which is how much money you can make from investing in it) went over 2.5% because board member Isabel Schnabel’s from the ECB said that people might not be thinking enough about inflation. But then someone else from the ECB said something more positive, and the markets improved again, with yields ending the week 10 basis points higher. Investors are now unsure about how much they'll be able to make in the future because some new information made them think interest rates might go up more than they thought. However, I think that this is only a short-term issue and that this is a good time to invest in 10-year Bunds and USTs (US Treasury Bonds).

Asia overnight

It was a quiet start to the week as investors await the FOMC Minutes later this week as well as the G20 meeting of Finance Ministers and Central Bankers. The President’s Day holiday in the US also helped keep things quiet in Asia. Dip buyers emerged in Chinese equities, which supported sentiment during the Asian session and at the time of writing, most Asian bourses were trading higher, but S&P 500 futures were trading in the red. The USD started the week modestly on the back foot with stronger Asian equities giving the AUD a boost and leading to the currency being the outperformer in the G10 during the Asian session. The EUR and USD were the underperformers.

USDJPY in need of something more

USD/JPY’s rally ran into stiff resistance above 135. A close above 135 would open the path to 138 and levels not seen since the exchange rate’s collapse in the wake of the BoJ’s surprise widening of its 10Y JGB yield target by 25bp to +/-50bp. USD/JPY needs more to make such a leap. The surprise move by the BoJ has generated anticipation of more adjustments being made to YCC, especially with the dovish Governor Haruhiko Kuroda retiring in April along with his dovish Deputy Governors Masayoshi Amamiya and Masazumi Wakatabe. This Friday will be important for the USD/JPY as it will determine if that something more is coming from the Japan side of things. Indeed, the release of nationwide CPI data should show inflation is failing to top out as the BoJ has forecast. More importantly, the appearance of PM Fumio Kishida’s nominee for the BoJ Governor slot, Kazuo Ueda, will be grilled by Lower House parliamentarians on his view of monetary policy in his confirmation hearing. So far we know Ueda does not see a need for further changes to YCC for now, according to comments he gave in a TV interview soon after his name was leaked as the BoJ Governor nominee. Ueda will be questioned on what he thinks about YCC’s sustainability and effectiveness, which will provide investors with insights of whether or not further adjustment to the 10Y JGB yield target is likely in the coming year.

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