BoJ Meeting Expectations Rise
After a quiet Asia session, USDJPY caught a bid in Europe after Reuters cited ‘sources’ saying the BoJ may extend the maturity of Japan government bonds it buys under its asset-buying scheme to three years (from two years currently). The source also reported that the BoJ is likely to further ease monetary policy on Friday via an increase in its asset purchases by Y5-10 trn. While the nature of the sources is unknown, it would be supportive for USDJPY if the BoJ were to water down its self-imposed restriction on JGB tenors – currently the central bank limits itself to JGBs with 2y of residual maturity or less. It was an otherwise quiet session in Europe – the periphery bond markets performed well, with Spain, Italy and Holland (after supply) tightening versus Germany, and reversing most of the losses from yesterday. Risk assets elsewhere were broadly flat or in slightly positive territory. In Asia, the Australian dollar suffered after Australia’s Q1 CPI inflation report came in much weaker than expected. Headline inflation fell sharply to +1.6% y/y (cons. 2.2%, prev. 3.1%). Market expectations had already been lowered by yesterday’s PPI report, but the scale of the miss was still surprising, and AUD promptly dropped 70 pips.. The rates market had previously priced in a full 25 bp cut from the RBA on May 1, but is now looking for 32 bp of easing at the time of writing. Our Australia economists doubt it will come to that – instead they stick to their view that a full 50 bp of easing is indeed on the way, but will be spread evenly between the May and June RBA meetings. Today, Bank of Canada Governor Carney also appears before a parliamentary committee – monetary policy is the key topic for discussion and the governor is likely to sound as concerned as ever about household debt after the bank re-instated an explicit tightening bias at last week’s policy meeting.
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