USDJPY Looking Buoyant
USDJPY advanced overnight, touching 81.50 for the second time since the BoJ eased policy two weeks ago. Weak Japanese inflation data for January illustrated the daunting challenge facing the BoJ as it strives to hit the new “goal” of 1%. Governor Shirakawa seemed to be under no illusion about the difficulties that lie ahead, noting again that boosting the supply of funds alone will not immediately lead to price rises. He trotted out his familiar belief that boosting growth is the best way to combat deflation. Elsewhere, San Francisco Fed President Williams stuck to his dovish instincts and noted that more stimulus is ‘definitely not off the table’. Yesterday’s second day of testimony from Fed Chairman Bernanke was largely a carbon copy of his first, and there was no FX reaction to the headlines. On the US data front, the February ISM numbers were below consensus at 52.4 (falling from January’s 54.1). Our US economists note that the report did show a sharp rise in the export orders index: to 59.5 from 55.0 in Jan and 51.7, on average, in Q4. The recent improvement has occurred despite concerns about slowing US export demand from Europe. Jobless claims were in line with consensus at 351k, while core PCE numbers were slightly stronger than consensus at 1.9% y/y. Elsewhere, the forward-looking PMI components in Italy and France improved while Norway had a headline reading of 56.9. The krone has continued to push higher and remains one of our favourite currencies, even under current valuations. During the Asia session, EURUSD traded 1.3294-1.3333 and USDJPY 81.05-81.52.
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UBS Investment Bank