BoJ In Focus
Risk appetite remained subdued during New York hours amid thin trading. Stocks and bond markets in the US were either fully closed or shut down early on Monday and major exchanges announced that they will remain closed on Tuesday as the impact of Hurricane Sandy is expected to continue through Tuesday afternoon. The focus ahead today will be on the BoJ’s policy meeting. Our Japan economists expect the BoJ to increase the size of its Asset Purchase Programme by JPY10 trn. However, this is now a consensus view and only a shift in the distribution of potential assets could affect price action. IMM positioning data released by the CFTC on Friday showed that yen shorts jumped very significantly last week – the highest in about 18 months. Considering that markets have already prepositioned for considerable easing, bolder BoJ action will be needed to drive USDJPY sustainably higher in the near-term. Meanwhile, EURUSD traded heavy on Monday as there is little immediate sign of a decision either in the case of Greece or Spain. Labour market reform is still the key bone of contention between Greece and the Troika. Though we still expect Greece to receive the next installment of external aid, it is quite clear that the road to eventual disbursement is likely to be bumpy. September retail sales in Spain were down by 10.6% (consensus: -6.2%), highlighting the deep recession in the country. Spanish Prime Minister Rajoy noted that he hasn’t asked for a bailout because the government “understands that it’s not indispensable at the moment”. In Canada, the government cut its GDP growth forecast for 2013 from 2.4% to 2.0% while keeping the 2012 forecasts intact at 2.1%. USDCAD pushed above parity overnight as Finance Minister Flaherty commented that lower commodity prices will affect the fiscal outlook. Ahead today, besides the BoJ meeting, markets will pay attention to ECB President Draghi’s speech and data releases in the US including the August S&P/CS home price index and October consumer confidence index.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank