USDJPY Rise Continues
The much anticipated Spanish auctions were largely uneventful. The treasury managed to sell EUR1.2 bn of the 2014’s and EUR1.42bn of the 2022’s – at the upper end of targets. The bid-to-covers were also reasonable at 2.42x on the 10 year bond. The euro rallied after the results were released, but soon ran out of steam after breaking through 1.3150 and was little changed from its opening levels at the time of writing. USDJPY continued its ascent as investor attention noticeably turns to what next week’s two policy meetings will bring. The FOMC and the BoJ policy decisions are likely to set the tone for USDJPY for months to come, and USDJPY is already creeping higher in anticipation. BoJ Governor Shirakawa fanned expectations overnight by saying he is ‘committed’ to continued monetary easing in order to meet the 1% inflation goal. He also sounded quite downbeat about the general economic outlook, noting Japan has “stagnated” and that growth in developed economies elsewhere is “anemic”. There was nothing in these remarks to dampen our expectations of further easing at the next policy meeting on April 27. Meanwhile the Bank of Canada has other intentions – it backed up Tuesday’s warning that “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate” with an upgraded 2012 GDP forecast of 2.4% (versus 2.0% previously) in its Monetary Policy Report. This underpins our generally bullish Canadian dollar view and three-month USDCAD target of 0.98. Together with the Bank of England turning considerably less dovish while the RBA signals a possible upcoming rate cut, central bank opinion has not been so diverse in quite some time. Today, the euro is likely to be highly sensitive to any surprise emerging from today’s sovereign bond auction in Spain. Our rates strategy colleagues think the small amount (EUR 1.5 bn-2.5 bn) of bonds being sold is likely to be comfortably absorbed by the market.
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