Ueda drove USD/JPY to its biggest daily loss here in 2 months:
Other:
Bank
of Japan Governor Ueda gave an interview with Yomiuri last week. The
media group published comments from the interview over the weekend.
In a nutshell, Ueda said that he thinks its possible that the BOJ will
have enough information by the end of 2023 to make an assessment if
wages will continue to rise, which is a condition for trimming
monetary stimulus. If the Bank is
confident that prices and wages will rise in a sustainable fashion then ending its
negative interest rate is one of the options available.
USD/JPY
was marked lower in very early trade here in Asia on
this.
Very early trade is characterised by super-thin liquidity. New
Zealand markets are the first to open here in the time zone. NZ markets
are only small. Australian markets are next open and even then NZ and
Australia combined are small markets only. Tokyo follows (Japan is 3
hours behind New Zealand), then Singapore and Hong Kong (SG and HK
are 4 hours behind New Zealand). I warn of this every week and
occasionally it bites. USD/JPY dropped from a closing level on Friday
(Americas time) around 147.80 to levels around 146.90 at this early
time before
dribbling a little lower still.
USD/JPY
had some retracement, back over 147.20 briefly. As interest rate
markets in Tokyo opened though Japanese Government Bonds came under
pressure. The 10-year yield rose to its highest since 2014. This gave
a renewed bids to the yen. As
I post its not far from its session lows under 146.50.
You’ll
know that yield differentials between the US (high) and Japan (low)
have been a key driver for the rising USD/JPY, a narrowing of this,
with rising Japanese yields today, is yen supportive.
As
an aside, there are plenty of analysts pointing out that Ueda’s
comments are very conditional and that super-easy policy will
remain in place for now. While this assessment is correct I think it
misses three critical important points. One, this is the first time that
Ueda has floated a potential timeline for a reduction of the Bank’s
ultra-easy monetary policy. Two, he made specific mention that
removing negative rates would be on the table as an option. Thirdly, the yen carry trade has seen positioning move to epic proportions.
Even the beginnings of an unwind will hit USD/JPY (lower) hard. The
freight train is moving. Its super brave to stand in front of it.
The
USD lost ground more widely with the USD/JPY move. AUD, NZD, CAD, EUR
and GBP are all higher on the session.
From
China today we had a record gap between the modelled estimate for the
USD/CNY reference rate (7.3437) and the actual rate (7.2148) handed
down by the People’s Bank of China. This aggressive move from the
PBoC is indicative of its concern over the rapidly dropping RMB and
signals its not prepared to let it plunge fast for now. The Bank is
not going to stop the decline, but it is not going to make it easy for yuan bears.
Note
in the bullets above a weekend announcement from China to allow
insurance firms to buy more equities, a supportive move for markets
there.
Over
the weekend we had inflation data from China, see bullets above.
Asian
equity markets:
-
Japan’s
Nikkei 225 -0.2% -
China’s
Shanghai Composite +0.5% -
Hong
Kong’s Hang Seng -1.4% -
South
Korea’s KOSPI +0.1% -
Australia’s
S&P/ASX 200 +0.1%
