Yen Talked Down Again
USDJPY broke above 90.00 overnight after doubts were cast on whether excess reserves held at the BoJ would continue to earn interest at 10bp. Media reports said the policy is up for discussion at next week’s BoJ meeting. We note that lowering this rate would be tantamount to a policy rate cut – although we stress we do not think this is a likely outcome next week. Meanwhile political voices continue to talk down the yen (with considerable success). Japan’s Finance Minister Aso said that it is for their own benefit that other countries are critical of the new administration’s yen policy. Hanada (who is an economic adviser to Prime Minister Abe) added that if USDJPY rose to 95-100 it would be “nothing to worry about”. BoJ and government officials met to discuss the content of the joint statement which is to be issued after the BoJ meeting on Tuesday. Final agreement on the text was not reached but this did not hold down USDJPY for long. Still with Japan, Fitch implied the sovereign rating is safe for now given: (1) Abe’s fiscal stimulus plans are not large enough to warrant a downgrade due to more spending and (2) sustained yen depreciation may generate export-driven growth. Elsewhere, NZ CPI came in much weaker than expected – our New Zealand economist acknowledges that this puts his call for a June hike at risk, but he maintains his existing view for now. Finally, the rally in EURCHF continued for another day and we raised our target to 1.2750 from our pre-existing level of 1.2550. We also trailed the stop to 1.2500 (well above the 1.2260 entry level for the trade).
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank