Yen to remain Neutral Outright

During a shortened Memorial trading week in the US, Japan gets to see much of the last month’s data released. Investors expect Japanese industrial production to continue to recover, potentially climbing to +1.5% following the +1.3% rise in March. Recent surveys shows that major manufacturers projected a +1.0% increase in April, but with real exports rising a healthy +6.3% last month, suggest that a potential overshoot in the production numbers is doable. Last week the BoJ decided to leave monetary policy unchanged. The bank left the size of its asset buying program at ¥70 trillion, and has put off making additional easing measures. However, the market expects the BoJ to follow through with more easing via its AP program. With the absence of a Fed interest rate policy shift and US yields pushing lower the market can expect the yen to have limited effect outright in the short term.

Below are some other highlights of the week:

ASIA

• CNY: Chinese Premier Wen Jiabao indicated that the Chinese authorities will focus more on bolstering economic growth, indicating that policies may be “loosened.” Policy makers “should continue to implement a proactive fiscal policy and a prudent monetary policy while giving more priority to maintaining growth.”
• TWD: Pac Rim data is providing evidence of slowing regional activity, Taiwan reported weak export orders for April, down -3.5%, y/y, mostly because of soft orders from mainland China. This should be consistent with continued softness in global growth currency proxies like AUD and NZD.
• JPY: Fitch downgraded Japan to A+ with negative outlook. The rating agency warned that the country’s current fiscal policy might not allow the government to meet its balanced budget 2020 target.
• NZD: RBNZ’s two-year inflation outlook showed Q2 inflation at +2.4%, marginally less than the +2.5% figure released in Q1.
• CNY: China’s Conference Board Leading Economic Index rose +0.8%, m/m, in April to 232.4. Four of the six components contributed positively to the index, up from three in the March reading.
• INR: The RBI has announced that further tightening of banks’ net overnight position limit (NOOP). Banks will no longer be able to include currency futures/options positions in the calculation and cannot offset their trades in exchanges by taking positions in the OTC market.
• Asia: In this risk off environment, Asian CBank’s resumed intervention in the FX market (BI, RBI, and BoK). According to analysts, most intervention remains in a “smoothing‟ mode rather than leaning more aggressively against currency weakness.
• BoJ: It was not a surprise to see the BOJ keeping its monetary policy unchanged this week, standing pat with the overnight rate at +0-0.1% as expected. The AP (asset purchase) fund and credit loan-program were also kept unchanged at +JPY40t and +JPY30t, respectively. The Japanese Finance Minister Azumi said that he expects further BoJ easing to help achieve the +1% inflation target.
• MYR: Malaysia’s CPI inflation fell to +1.9%, y/y, in April, below consensus forecast for an unchanged +2.1% in March. Analysts expect GDP to remain reasonably robust, supported by strong domestic demand. Fixed income expects the BNM to keep policy on hold for the rest of the year.
• SGD: Singapore’s CPI inflation rose to +5.4%, y/y, in April. The MAS’s core-inflation has eased to +2.7%, y/y, from +2.9% in March. The acceleration in inflation was driven by higher housing cost. With inflation at its recent highs levels, the MAS is expected to maintain the SGD NEER on its current +3% appreciation path.
• AUD: Aussie Westpac Leading Index rose +1.2pts or +0.4%, m/m, in March to 284.6, compared with 283.4 in the previous month. This has led to a rebound in the annualized growth rate to +2.2% from a revised +1.9% in February.
• CNY: China continues to spew out questionable data. This week there was a further decline in HSBC PMI. The preliminary Chinese Manufacturing PMI fell to 48.7 in May, compared with a final reading of 49.3 in April. This marks the seventh straight month the index has been in contraction territory. Already authorities have pledged to intensify the “fine-tuning” of policies following Prime Minister Wen’s comments about supporting growth during the G8.
• NZD: Kiwi exports fell to +NZD3.89b last month from a revised +NZD4.21b in the previous month. Imports also declined to +\$3.53b as the trade surplus for April came in at +\$355m, lower than the consensus forecast of +\$400m.
• INR: India has started raising fuel prices for the first time in seven-months. Perhaps this may lead the RBI to be less aggressive in its easing policy?
• JPY: Japan’s core CPI rose +0.2%, y/y, in April, higher than the consensus estimate for a +0.1% gain.
• PHP: The Philippines trade deficit rose in March. Imports were down -3.3%, y/y, after a revised +2.5% gain in February.
• KRW: Korean consumer confidence rose to the highest level in 15-months as the sentiment index came in at 105 in May, up from 104 in April.

AMERICAS Week in FX

ASIA Week in FX

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