Yen Strengthened Earlier Today As Bank of Japan (BOJ) Refrained To Ease More Aggressively
The Bank of Japan maintained the current pace of easing, keeping a pledge to expand the monetary base at a pace of 60 trillion to 70 trillion yen per year, the central bank said in a statement in today, in line with what the analysts expected earlier.
April sales-tax could threaten to trigger an unexpected quarterly growth contraction. In order to achieve its 2% inflation target within 12 months, they could add in more stimulus in the 2nd quarter. China’s credit growth trailed analysts’ estimates in February, signalling a shadow-banking slowdown following a trust investment product’s near default. Aggregate financing was 938.7 billion Yuan, New Yuan loans were 644.5 billion Yuan, accounting for about 69% of aggregate credit, the largest proportion since July last year. The benchmark Shanghai Composite Index fell 2.9% yesterday, the most since June, after figures on foreign trade and producer prices released over the previous two days. The Yuan dropped 0.17% to close at 6.1385 per dollar in Shanghai, having earlier lost as much as 0.51% , after the central bank cut the reference rate by 0.18%, the most since 2012.
China’s economic data between January and February are always delusive due to a weeklong Lunar New Year holiday, which began on Jan. 31 this year. From our point of view, market could only start to view these data more seriously after the month of March. That is the reason the Aussie did not react aggressively from the negative sentiment in China.
People’s Bank of China (PBOC) Governor Zhou Xiaochuan also elaborated on the central bank’s policy in a briefing today with other Chinese financial regulators. Governor Zhou Xiaochuan said that deposit rates will be liberalised in one to two years thus suggesting the government could prolong its reform agenda. China last year removed a floor on what banks can charge for loans. Revamping deposit rates is the “riskiest” part of reforms leading toward full interest rate liberalization, and would carry a “much more profound impact,” the central bank said July last year, when it allowed banks to freely price loans.
The deposit rate liberalisation was expected to realise in 3 years after the PBOC liberated the lending rate a year ago. So the current pace was just in line with the earlier expectation. However, various growth uncertainties may slow down the pace of financial reform. We think it will be no less than 18 months. The pace of this depends on its reform agenda processes.
The risk of liberalising the deposit rate will be much less when macro environment is more stabilised as:
- Consumers are more willing to spend, lifted by the higher income and savings.
- Liquidity crunch could be avoided given the current Chinese growth is still largely driven by the credit. Higher deposit rates shrink the banks’ profit margin.
In other words, in order to push for more financial reforms, the government needs to decelerate the pace of the shadow finance growth gradually from now and enlarge the percentage of personal consumption spending.
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UK Industrial Production MoM
I expect figures to come at 0.3
Sweden Consumer Price Index (CPI) YoY
I expect figures to come at 6.6%
Short USDJPY at 103.50
After the BOJ decided to maintain its current pace of easing, we think the short term upside risk of the USDJPY could be much less. Given the less data flow this week to influence the greenback, the upside risk for the USD trimmed, as the Federal Reserve is likely to further strengthen the forward guidance next week in the Federal Open Market Committee (FOMC) meeting.
On the technical side, the level of 103.5 could offer some resistance here, and we would go “short” this pare once the price rebounds to this level.
Entry Price: 103.50
Stop Loss: 104.00
Target Price 1: 103.00
Target Price 2: 102.60
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