Bank of Japan will mull further easing

Bank of Japan governor Kuroda spoke before the Diet yesterday, explaining that the Bank of Japan does not have currency manipulation as its target, though it’s crucial to guide monetary Policy with one eye on the economy and another on market moves, including FX. He noted that the Fed had become more cautious in its comments recently and the BOJ must carefully watch the impact of Fed policy on the global economy and financial markets.

It was his comment that the BOJ will mull further easing if FX moves hurt the economy and threaten achieving price goals, effectively linking BOJ policy to the value of the yen, that Japan traders latched on to this morning. He assured that there were still various easing steps available to the Bank, but it was necessary to balance the benefits versus costs. The yen was little changed yesterday but weakened today as investors considered the easing comments. The yen is down 0.25% at 110.89 per US dollar today, hitting the lowest level since Thursday, and dropping 0.35% to 125.79 versus the Euro.

USD/JPY Daily Chart

NOTE: Kuroda is due to appear in front of the Diet again today

Australia wage growth slows

Wages growth in Australia scaled back in the fourth quarter as the wage price index expanded 0.5% on a quarter-by-quarter basis, lower than the 0.6% increase seen in Q3 and below economists’ forecasts of a 0.6% gain. Compared to a year earlier, the wage price index rose 2.3%, the same as in Q3 and matching estimates.

The Aussie weakened initially on the headline, dropping to an intra-day low of 0.7151, before recovering to above 0.7170 shortly afterwards. The FX pair managed to close above the 100-day Moving Average yesterday, the first time since February 5 and both that, now at 0.7163 and the 55-day moving average at 0.7151 could act as support in the near term.

AUD/USD Daily Chart

Yuan strengthens

USD/CNH fell 0.4% yesterday and has declined as much as 0.32% today in reaction to news that the US is pressing China to keep the Yuan stable as part of the trade negotiations. The yuan rose amid assumptions that China keeps the yuan artificially undervalued as part of its trade policy. Since the trade war began, the Trump administration has threatened that any attempt to depreciate the yuan to counter the US tariffs would be met with more or higher American tariffs. That seemingly never-ending vicious circle. USD/CNH is now at 6.7236, close to the lowest in almost three weeks.

A golden day for sterling

PM May to visit Brussels (again)

There’s not much to excite investors on the European calendar, apart from UK PM May’s visit to Brussels for another meeting with EU’s Juncker. With speculation mounting in the UK press that she may bring forward the Brexit vote to next week, this meeting perhaps has more importance than the rest, with a UK government spokesman referring to the meeting as “significant”.

The highlight for the US session will be the release of the FOMC January meeting, with investors hoping for more clarity/details about the Fed’s U-turn on its rate hiking policy and insight into the factors it might be monitoring going forward.

The full MarketPulse data calendar is available for viewing at https://www.marketpulse.com/economic-events/