Yen Weakness Anticipated
The last week of Japan’s fiscal year got underway overnight, and anticipation is already building that the crossover to the new year will prompt a resumption of the five-week-old USDJPY rally. Softer-than-expected US housing data on Friday forced USDJPY sharply lower, although we see this as only a temporary setback for the pair. The yen selling resumed overnight with USDJPY trading in a range of 82.33-82.78. What happens in the very short term will depend in large part on what Fed Chairman Bernanke has to say when he offers “A View from the Federal Reserve” later today. Generally firmer US economic data would appear to justify a more upbeat tone, although we would expect the chairman to maintain his generally cautious outlook. A total of eight other FOMC officials will also air their views this week. Whether mainstream Fed opinion has already begun to shift materially is still an open question, but we do expect Fed-BoJ policy divergence to become more pronounced in coming months. Stay on guard for additional BoJ easing via the APP as early as next month – possibly coinciding with the release of the bank’s next Outlook Report on April 27, just days after the FOMC meeting. Elsewhere today, the spotlight will come to rest on Germany’s IFO survey – especially in the wake of last week’s surprisingly weak PMI. UBS expects all IFO indices to fall marginally. Later in the week the euro will likely be sensitive to any headlines around the expansion of the Eurozone’s rescue infrastructure. It appears that a consensus is forming that would temporarily raise the bailout firepower to EUR940 bn. This would be a moderately euro-positive development, although any negative reaction by the ratings agencies to an increase in sovereign contingent liabilities could quickly undo the advantage.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank