Trade Deficit Watch In Japan
Having slipped from its overnight highs above 84 amid the softer UST yield profile, USDJPY has steadied going into the release of Japan’s February trade report, which should not provide much encouragement for the yen. While exports are likely to improve in the wake of the distortions caused by the Chinese New Year in January, the imported energy bill is expected to stay at elevated levels, keeping the trade balance in the red. USDJPY should also be supported by a gradually fading ‘home currency bias’ among yield-hungry Japanese investors entering fiscal 2012 – as highlighted in comments (reported yesterday) by an official at one of the major life insurers, who deemed the BoJ’s easing move on February 14 to be a key “historical turning point” that will boost USDJPY. Another factor underpinning our threemonth USDJPY target of 85 is a steady Fed on evidence of a durable US recovery. The 0.9% m/m dip in US February existing home sales did not change the picture, countered by the upward revision to January (5.7% m/m) and the rise in median prices. Given the weaker tone in the equity markets and lingering concerns about slower growth in China, another sub-50 flash Chinese manufacturing PMI reading for March today would likely embolden the AUD bears, though the flash results should not obscure the three successive prints above 50 for the official series. NZDUSD has retreated in the wake of the disappointing Q4 GDP numbers for New Zealand, while EURUSD is looking heavy on heightened peripheral worries (note the rise in Spanish yields overnight), with the advance Eurozone PMI figures for March unlikely to provide fresh support for the euro. UBS expects a below-consensus manufacturing print of 47.5.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank