Land of the Rising Yen

Japan’s Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing. He and his policy makers can breath a small ‘sigh-of-relief’ after NFP, the market decided to sell the JPY outright! How long is this going to last? These specific market moves are providing better levels to own the currency. Markets have taken the Ministers comments in their stride. Intervention is a rising risk for USD/JPY shorts if the pair falls towards that psychological 75 benchmark. It seems that exporter related sales will continue to cap any upside potential for the dollar. So, fears that the Greek Prime Minister may resign, the uncertainty that the Dutch Government may not want to write down loans to Greece will again make the yen more attractive.

Below are some other highlights of the week:

Asia

• CNY: Chinese markets resumed trading following the week-long Lunar New Year holidays. Premier Wen said that the Chinese government will enhance the elasticity of the CNY exchange rate in both directions.
• JPY: Japanese Finance Minister Azumi warned against a renewed rise in the yen and vowed to take firm steps against excess volatility and speculative moves in the FX market.
• JPY: Japans December IP rebounded +4.0%, m/m, following the -2.7% fall in the previous month (the ‘flood’ knock effect-on from Thailand).
• JPY: Yen remains sensitive to G10’s yield compression.
• KWN: Korean IP growth fell to +2.8%, y/y in December from +5.8% in November. This is very much inline with soft export growth in December.
• SGD: Singapore’s unemployment rate remained at +2% in Q4, despite weakness in IP and GDP growth for the same period. This suggests that the tightness in the labor market is partly structural.
• CNY: China’s manufacturing PMI rose +0.2pt to 50.5 (higher than the consensus forecast of 49.6). Importantly, the PMI was much stronger than the seasonal pattern for a -0.7pt fall. New orders up +0.6pt to 50.4 while inventory fell -2.6pt to 48.0. Export orders fell -1.7pt to 46.9 while input prices rallied +2.9pt to 50.0. The data reduces the scope for monetary easing.
• KWN: Korea’s CPI inflation fell to +3.4%, y/y, last month (foretasted for +3.6%). Core-inflation also slowed to +3.2%, y/y, from +3.6% in December. Digging deeper, exports fell -6.6% in January (first negative growth in three-years), providing a – $2.0b trade deficit. Note: Asian data may be distorted by the lunar New-Year celebrations.
• IDR: Indonesia CPI inflation eased to +3.7% in January as expected. Core-inflation was broadly unchanged at +4.3%, y/y. The futures market expects their Central bank to ease monetary policy further, cutting rates -25bps to +5.75% next week (February 9). Export growth fell to +2.2% in December while import growth surged to +24.3%. The data has narrowed the trade surplus. Is their economy in the first stages of over heating?
• TWD: Thai CPI inflation fell to +3.4%, in January (as expected). Futures market again expects the Bank of Thailand to cut policy rates by another -50bps to +2.5% by the end of Q2.
• JPY: Comments from Japanese officials are finding it difficult to halt the yen gains. The perception that JPY is one of the most liquid currencies in the world is been seen as a sound alternative to the two prime reserve currencies, EUR and USD. Their stability and debt-led debasement issues are to blame. This would suggest that it’s only a matter of time before the BoJ appears in the markets directly. A similar storyline is being played out in Europe with the SNB.
• CNY: China’s non-manufacturing PMI fell -3.1pts to 52.9 in January (less than expected). The HSBC Services PMI was unchanged at 52.5 for a third straight month in January.
• JPY: Japan Finance Minister Azumi said that the government will take decisive currency steps if needed and that speculative moves in the currency market are increasing.
• INR: RBI’s Deputy Governor Gokarn said that the central bank may buy dollar rupee to inject INR liquidity.

AMERICAS Week in FX

EUROPE Week in FX

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