Article / 19 April 2013 at 8:08 GMT

JPY weaker on signs G20 to offer little resistance to weakening

Head of FX Strategy / Saxo Bank

Japan’s Finance Minister out claiming G20 offers no objections to Japan’s policies, which are naturally “not aimed at weakening the JPY”. The market is trying to pick up the pieces of the risk-on trades again.

The yen is weaker this morning after Japan’s Finance Minister Taro Aso says the G20 meeting of finance leaders offered no objections to Japan’s policies. The initial reaction from this development is to jump back into the pro-risk, JPY-short trades as we JPY crosses jumping back higher this morning while gold has pushed above 1400 and equities in Asia had a positive start. It all looks a bit too easy really – let’s see how we close the day today – thinking we might see some dramatic swings today, though not sure of the direction. If 100 falls in USDJPY and asset markets chime in with their approval, the psychology of the global liquidity trade could mean a further blow-out to the upside in JPY crosses with a swell of support from asset markets – though I remain sceptical after the recent volatility across markets.

The G20 statement will still contain language warning against policies aimed toward competitive devaluation and the South Korean president has complained that Japan’s policies are more of a threat to the country than the situation with North Korea. Look for the Chinese response as well now that we are on the other side of this meeting – possibly in the coming week if USDJPY pushes above 100. As USDCNY has fallen to new lows recently, the CNYJPY level is banging on the door of 15-year highs here.

We’re likely to get an escalation in the response from China if CNYJPY continues higher from here. Currently the pair is almost 30% higher in just the last 6 months. Chart courtesy of Bloomberg.


Looking ahead
Look for more news on the Italy front as we have round 2 of the efforts to find a new Italian president, with a failure possibly leading to yet another vote that may only require a simple majority. The question of whether a functioning government can form remains unanswered. I’ll not pretend a thorough understanding of Italian politics – but one can only note that the bond markets certainly don’t seem to be scared, nor is EURUSD at the moment. We need to see a 1.3000 break soon or we risk a squeeze back higher and new highs somewhere between 1.3250 and 1.3350 if we swing above 1.3125 or so – great areas to sell strategically if we get there, but we’re in limbo for the moment.

After the Weidmann comments a couple of days back helped to push the Euro lower, one would be well advised to watch this press lunch event/whatever at 1130 GMT that will feature both the ECB’s Weidmann and Germany’s Finance Minister Schaeuble. Could there be a tipping of hats at a new policy direction from the pair? This looks potentially pivotal.

Stay careful out there. Note that the Fed’s Stein is out speaking at 1600 today. Mr. Stein is the point-man among the Fed governors on the “reach for yield” issue in credit and asset markets and any dramatic warnings from this speech today that credit markets are excessively complacent/bubbly could serve as a heavy duty warning sign and support the USD and punish risk in late trading.

Look out for the IMF/World Bank meeting over the weekend.

Economic Data Highlights

  • Germany Mar. Producer Prices out at -0.2% MoM and +0.4% YoY vs. +0.1%/+0.7% expected, respectively and vs. +1.2% YoY in Feb.

Upcoming Economic Calendar Highlights (all times GMT)

  • Euro Zone ECB’s Weidmann, Germany’s Schaeuble hold press event (1130)
  • Canada Mar. Consumer Price Index (1230)
  • US Fed’s Stein to Speak on Credit Markets (1600)





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