By FXEmpire.com
Regarding trading, Asian equities trade rather mixed to slightly negative. There are some headlines for policymakers like Draghi, Asmussen, and Monti, but they don’t give much guidance for trading. The calendar is fairly thin. Of course, ahead of the long weekend, investors are usually a bit risk averse, in which case the correction of core global bonds would not continue.
Nevertheless, for the EMU bond markets, the most interesting issue will be whether the switch from German bonds towards the semi-core will continue or whether yesterday’s switch was a one off.
Yesterday, there was hardly anything to tell in the price action in the USD/JPY cross rate. The pair developed in a very tight sideway range in the mid 79.00 area. The dollar found a slightly better bid late in the session as US bond yields trended a few basis points higher. USD/JPY closed the session at 79.60, compared to 79.47 on Wednesday.
The JPY was unchanged from prior day’s close, as movement remains limited in the absence of domestic data. BoJ Governor Shirakawa has spoken about the need to improve Japan’s fiscal metrics given concerns over the potential impact of rising bond yields in the world’s most indebted country. Poor fiscal balances, stagnant growth, easy policy, and weak demographics are key to our weak (long-term) JPY forecast.
However, in the short term, safe haven flows will drive yen strength, as evidenced by the recent decline in EURJPY which has begun to consolidate around 100.00.
Today, the Japanese April CPI was reported at 0.4% Y/Y. However, the core data were still below that level and the Tokyo CPI from May stayed even in deflation territory. (-0.5% Y/Y for the headline). So, there is still some work to do for the BOJ to meet its inflation target. USD/JPY is a few ticks higher compared to yesterday’s closing levels.
The USD/JPY pair reached a correction low in the 79.00 area at the end of last week/early this week. We look out whether these levels will hold. Even if this is the case, a clear improvement in sentiment on risk is probably needed to trigger a sustained rebound of the USD/JPY. So, we’re not in a hurry to reinstall USD/JPY long positions.
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Originally posted here
