Asia today: No change from the BOJ sees JPY moderately higher

The Bank of Japan decided to keep interest rates unchanged and left the asset purchase fund unchanged at ¥40 tln and its credit lending programme at ¥30 tln. The Bank commented that caution was needed due to the uncertainty in global financial/capital markets and the European debt problem but the US economy’s moderate recovery and signs of a better outlook for the domestic economy are positives. USDJPY slid 20 points to 79.60 post-announcement.

The sharp reversal in the EUR caught many Asian traders wrong-footed overnight and we saw additional bailing out of short-term longs at the start of trading. We looked set to test the 2012 lows before a headline circulated that former Greek PM Papademos had commented that there are no preparations underway in Greece for possibly exiting the Euro. These were contrary to headlines circulating overnight whether there were such contingency plans being studied.

There was slight disappointment from Japan’s trade data for April with exports rising a smaller-than-expected 7.9 percent y/y and indicating that the uncertain external situation is slowly eroding one prop for the economy. Exports to the US were higher in the month, gaining 42.9 percent from a year ago but those to China fell 7.1 percent y/y. Imports rose 8 percent y/y, also below forecast, resulting in a trade deficit of ¥520.3 bln, the second in a row.

The aftermath of the OECD’s latest global growth projections left the USD at the top of the pile overnight with the JPY also knocked back by a Fitch downgrade to Japan, with a negative outlook. OECD sees global growth slowing to 3.4 percent this year and the fragile recovery among developed economies at risk if Europe cannot sort out its ongoing crisis. Earlier today the World Bank announced a reduction in its China growth forecast for 2012 to 8.2 percent from 8.4 percent. The bank also urged China to take measured fiscal policy steps to boost consumption rather than rely on state investment to lift activity. China Vice Premier Li Keqiang reiterated comments made by Premier Wen earlier this week that China will stick to active fiscal and prudent monetary policies in a bid to sustain fast economic growth.

On the data front, UK CPI was marginally more benign than forecasts (+3.0 percent y/y vs. 3.1 percent) but still on the cusp of the BOE’s crucial 3 percent threshold. GBP underperformed on the back of this. EUR was unable to benefit from a slightly better-than-expected Euro-zone consumer confidence number for May (at -19.3 from -19.9 and -20.5 expected).

From the US, Richmond Fed manufacturing activity index was a miserable +4 from +14 the previous month while existing home sales indicated a slight rebound from March with +3.4 percent m/m increase, better than the +2.9 percent expected and a revised -2.8 percent prior. Wall St closed mixed but broadly flat with the DJIA down -0.01 percent, S&P +0.05 percent and the Nasdaq -0.29 percent. Facebook lost another 9 percent.

Data Highlights

• EU May Euro-zone Consumer Confidence out at -19.3 vs. -20.5 expected and -19.9 prior
• US May Richmond Fed Manufacturing Index out at +4 vs. +11 expected and +14 prior
• US Apr. Existing Home Sales out at +3.4% m/m vs. +2.9% expected and revised -2.8% prior
• JP Apr. Merchandise Trade Balance out at -¥520.3b vs. -¥470.8b expected and revised -¥84.5b prior
• JP Apr. Trade Exports out at +7.9% y/y vs. 11.8% expected and 5.9% prior
• JP Apr. Trade Imports out at +8.0% y/y vs. 10.1% expected and revised +10.6% prior
• AU Mar. Conference Board leading Index out at +0.2% vs. flat prior
• AU Mar. Westpac Leading Index out at +0.4% m/m vs. revised flat prior
• AU Apr. DEWR Internet Skilled Vacancies out at -0.8% m/m vs. revised -0.5% prior
• JP Bank of Japan leaves rates unchanged, no additional stimulus

Upcoming Economic Calendar Highlights

(All Times GMT)

• SI CPI (0500)
• Sweden Unemployment Rate (0730)
• EU Euro-zone Current Account (0800)
• UK BOE Minutes (0830)
• UK Retail Sales (0830)
• UK CBI Trends – Total Orders/Selling Prices (1000)
• US MBA Mortgage Applications (1100)
• CA Leading Indicators (1230)
• CA Retail Sales (1230)
• US House Price Index (1400)
• US New Home Sales (1400)
• US Fed’s Kocherlakota to speak (1800)

For more information on today’s events, please visit the financial calendar