– USDJPY likely to break 99.00
Equity markets in Asia are for the most part in the red hurt by China’s announcement of property tightening measures and concerns over the new strain of bird flu. However, the out performance of Japanese stocks (over 2.5% today) suggests that last week’s BoJ easing is still having a big impact. USDJPY’s upside momentum remains very strong with the pair up above 98.50, over a figure from Friday. Despite the wobble on Friday, JGBs remain better bid after the BoJ offered to buy a total JPY 1.2trn under its new policy. An eventual test of 100 seems highly likely, though there are likely to be a number of barriers between 99-100. The investing behaviour of Japanese banks and life insurance companies will increasingly shape how the JPY trades from hereon. We argue that larger JGB purchases at longer maturities by the BoJ could crowd out large domestic investors, encouraging domestic outflows that have been absent until now (see chart). Meanwhile, the NZD could be an out performer this morning following comments from RBNZ that low mortgage rates are one reason for rising house prices, and the current flat rate outlook may need to be revised. AUDNZD broke below 1.2250 (1.5 month low) in early Asia trading but the cross has edged back above 1.2300. Thursday’s Australia employment report will be important for this cross. There is expected to be some payback in the data following an unusually strong February report.
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BNP Paribas