Risk Remains Under Pressure
Lower UST yields and the stronger yen overnight highlighted the lingering concerns about global growth, with the latest US data (claims down to 359k from 364k; Q4 GDP growth unrevised at a 3.0% annual rate; Q4 operating profits up 0.9% q/q) failing to really inspire. Yet, after touching sub-82 territory, USDJPY has managed to recover its poise alongside the yen crosses on the back of the late rebound in US equities. While USDJPY has been confronted by exporter sales and repatriation talk into month-end, flows should turn more supportive as the new fiscal year kicks off next week. Note that the Japanese have been net foreign bond buyers in 10 of the past 12 weeks (including last week) to the cumulative tune of JPY5.5 trn, a clear indication of the desire for better returns overseas. Japan’s CPI numbers today should serve reminder that deflation has yet to be expunged. While higher electricity charges and gas prices will support the core nationwide figure for February (UBSe: 0.0% y/y), we expect a negative result for the ex-food/energy component (UBSe: -0.9% y/y). We still see scope for further BoJ easing as early as next month which, superimposed upon a steady Fed posture, should keep risks tilted towards our three-month USDJPY target of 85. Ahead today, we have the Eurozone finance ministers meeting, plus US personal income/spending and consumer sentiment data. Commodity currencies in particular may tread cautiously ahead of the official Chinese March PMI due on April 1.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank