Just Kidding

Has yen weakness gone
Far enough?  Says Amari
I was just kidding!

Remember yesterday, when Japanese Economy Minister Akira Amari said that the yen’s weakness had gone far enough and that there were people who would be hurt by a further decline?  Apparently, he was just kidding.  I guess after those comments hit the tape, he was called into a room and it was explained that the Japanese government doesn’t focus on the currency exchange rate, only on its growth policies and efforts to achieve 2% annual inflation in 2 years time.  When Amari recanted his comments, USDJPY immediately rallied and this morning we are back to just below 103.  As I have maintained consistently, there is more to this story with the yen having much further to go.  The next big resistance is at 103.30-50, but that too will be breached and 110 remains my target for year-end.

The other story of note overnight was the UK inflation data, which was released early this morning much lower than expected.  CPI fell to 2.4%, expected 2.6%; and core CPI fell to 2.0%, exp 2.3%.  (Do you think the Japanese are jealous?) Seriously, though, the pound immediately fell after the release, down 0.6% and back to its lowest level in about 6 weeks.  The key is that with inflation falling and with Mark Carney starting his term on June 1, the idea of an increase in QE has gained much traction in the market.  And remember this, the US story has been more discussion of how and when the Fed is going to withdraw stimulus, so the idea of another wave of QE in the UK is a clear negative for the pound.  If it is to happen, I would expect it will need to wait for the second MPC meeting run by Carney, as he will need to introduce himself at this one.   But the recent UK growth story has seemed to improve, so this is no slam dunk.

The euro is little changed overall, as German PPI data was largely ignored as was a mild upgrade of the German economy by the Bundesbank.  There was no other data released in the Eurozone and I think all eyes are on the next EU meeting this week, although it doesn’t seem likely to have a market impact given its focus on energy and tax policies.

Today has seen broad based, albeit modest, USD strength, with the emerging market currencies fading almost universally, the dollar stronger against the commodity currencies, and commodity prices in general having fallen a bit.  With no US data to look forward to, market players seem content buying dollars on any dips for now.   The broad outlines of market activity are little changed of late, and although we will hear from St Louis Fed president Bullard today, tomorrow Chairman Ben speaks to Congress and that has the potential for a much bigger impact.   So I expect another generally quiet session, with perhaps a bit further USD strength by the end of the day.

Good luck