High-Flying Yen

April 7, 2016

The yen climbed to new highs for the move of 108.02 per dollar and 123.12 per euro.  The yen overnight gained 1.3% on balance against the U.S. currency despite yesterday’s hint from a Ministry of Finance official that intervention is possible.  Today, Prime Minister Abe seemed to undermine that threat, saying that countries should not engage in competitive devaluation.  The yen has been bid upward in a globally risk averse environment and despite weak Japanese fundamentals.

Bank of Japan branch managers are holding a quarterly conference.  At such, Governor Kuroda opined that a recession can be avoided, claiming the trend of recovery, albeit modest, remains intact and promising to stimulate further if that becomes necessary.  The central bank will release new macroeconomic forecasts at its meeting at the end of this month.

Yesterday’s released FOMC minutes displayed no sense of urgency to tighten but also revealed a lack of homogeneity among Fed officials.  Some worry about delaying stimulus too long.  Others seek to learn more about the global headwinds before lifting rates again.  Policymakers discussed the possibility of hiking the fed funds rate at the April meeting but were predisposed against doing that, which shifts the focus to the June meeting.  To underscore the difference of opinions, Dallas Fed President Kaplan separately made remarks that he expects the U.S. recovery to exhibit resilience, allowing for a cautious but sustained rise in the federal funds rate.

The “Account” of the last ECB Governing Council meeting dwelled on global uncertainty and indicated a readiness to stimulate further to promote a rise of inflation closer to target.

Fed Chair Janet Yellen today will be participating in a unique panel discussion at International House in New York City with her three predecessors, Paul Volcker, Alan Greenspan and Ben Bernanke.  ECB President Draghi speaks publicly today as well.

Besides the aforementioned slide against the yen, the dollar shows a drop of 0.3% versus the yuan, no change relative to the Swiss franc and Canadian dollar, and advances of 0.8% against the Aussie dollar, 0.3% vis-a-vis the kiwi, 0.2% against sterling and 0.1% against the euro.

U.S. equity futures point to a drop at the open.  Share prices overnight fell 1.4% in China, 0.9% in India and 0.3% in Taiwan but firmed 0.4% in Australia and Hong Kong, 0.3% in New Zealand and 0.2% in Japan.  European stocks are down by 1.3% in Italy, 0.8% in Spain, 0.3% in Greece, 0.2% in France and 0.1% in the U.K. and Germany.

Along with the yen, gold is today’s other big winner, rising 1.3% to $1,237.74 per ounce.  West Texas Intermediate crude oil slipped 0.2% to $37.68 per barrel.

10-year sovereign debt yields are unchanged in Japan and Germany but down two basis points in Great Britain.

The National Bank of Serbia’s key interest rate was left unchanged at 4.25%.  There was an earlier 25-basis point cut in February and several reductions in 2015.

Chinese international reserves increased $10.3 billion, breaking a string of reductions in November-February.

Japanese reserves climbed by $7.95 billion last month and by $28.885 billion during the first quarter, as the yen appreciated.

Japanese stock and bond transactions generated a JPY 2.056 trillion net capital inflow in the fiscal year cusp week ending April 1.  This followed a net outflow of JPY 3.319 trillion in the final week of fiscal 2015.

Australia’s construction PMI fell more deeply below the 50 no change level, printing at 45.2 in March.  It was the fourth straight sub-50 reading.

The Halifax index of British home prices accelerated to a 10.1% year-on-year pace of rise in the first quarter, most since July 2014.

In the year to February, industrial production rose 1.4% in the Czech Republic and 2.2% in Spain but fell 1.8% in Norway and 0.7% in Denmark.

The French trade deficit widened 32.5% on month to EUR 5.18 billion in February.  The French current account gap that month was EUR 3.9 billion after a deficit in January of EUR 2.2 billion.

In the year to March, consumer prices slipped 0.3% in Ireland and 2.5% in Cyprus,  but rose 0.6% in The Netherlands.

Greek joblessness in January was at 24.4%, lower than in December.  Czech retail sales rose 8.5% in the year to February, most since last 2008 and by 4.0% even when adjusted for variations in the number of working days this leap year.

U.S. weekly jobless claims and consumer credit get released today.  So do Canadian housing permits data.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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