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12 Apr 2013
Forex Flash: Kuroda signals flexibility with possible eye on JGB market - BTMU
Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that the Yen remains stable just below the 100.00 level versus the dollar with the latest comments from BOJ Governor Kuroda having little impact on the currency.
He adds that Kuroda once again reiterated that the policy stance of the BOJ was not geared toward weakening the yen, but was merely a by-product of the action taken, although he is not sure there are many who would take that statement at face value. Halpenny notes that Kuroda also appeared to ease off a touch on achieving the 2% inflation goal in two years. Yesterday, he stated that the goal would be pursued “flexibly” and other factors would be taken into account. He sees that this may be an attempt to ease investor concerns that a 2% inflation level would be pursued at any cost.
He continues to note that given the increased volatility in the JGB market since the announcement, the BOJ may well want to see some stability restored to that market. He writes, “The 5-year JGB yield doubled from 0.13% to 0.26% yesterday and is only slightly below that peak now. Liquidity concerns and uncertainty over the ability of the BOJ to buy up the required quantities of JGBs at regular auctions explains this upturn in volatility.”
Further, Halpenny notes that the BOJ is actively communicating with market participants in order to ensure investors that these operations can run smoothly going forward. Today, the BOJ bought JPY 2.51trn worth of JGBs in its second round of buying since the policy meeting with the 10-year portion offered by the market three times larger than what the BOJ offered to purchase. JGB futures sold off after the auctions suggesting the market may have been expecting an even larger amount to be offered by the market.
He feels that clearly, if JGB yields were to continue to rise and volatility to increase, investor concerns would likely spread and could negatively impact the yen. However, his view is that the BOJ will prove successful in calming market fears and given about 70% of gross issuance will be absorbed going forward, yields should settle down. In other news from Asia, the Monetary Authority of Singapore left its monetary stance unchanged at its bi-annual policy meeting, leaving the Singapore dollar on a trade-weighted basis on a ‘modest and gradual appreciation’ path.
He writes, “The band width and where SGD is centred were unchanged. The MAS did lower its inflation projections given current weak economic growth. The decision was as expected and USD/SGD is unchanged, like much of the rest of Asian currencies.”
He adds that Kuroda once again reiterated that the policy stance of the BOJ was not geared toward weakening the yen, but was merely a by-product of the action taken, although he is not sure there are many who would take that statement at face value. Halpenny notes that Kuroda also appeared to ease off a touch on achieving the 2% inflation goal in two years. Yesterday, he stated that the goal would be pursued “flexibly” and other factors would be taken into account. He sees that this may be an attempt to ease investor concerns that a 2% inflation level would be pursued at any cost.
He continues to note that given the increased volatility in the JGB market since the announcement, the BOJ may well want to see some stability restored to that market. He writes, “The 5-year JGB yield doubled from 0.13% to 0.26% yesterday and is only slightly below that peak now. Liquidity concerns and uncertainty over the ability of the BOJ to buy up the required quantities of JGBs at regular auctions explains this upturn in volatility.”
Further, Halpenny notes that the BOJ is actively communicating with market participants in order to ensure investors that these operations can run smoothly going forward. Today, the BOJ bought JPY 2.51trn worth of JGBs in its second round of buying since the policy meeting with the 10-year portion offered by the market three times larger than what the BOJ offered to purchase. JGB futures sold off after the auctions suggesting the market may have been expecting an even larger amount to be offered by the market.
He feels that clearly, if JGB yields were to continue to rise and volatility to increase, investor concerns would likely spread and could negatively impact the yen. However, his view is that the BOJ will prove successful in calming market fears and given about 70% of gross issuance will be absorbed going forward, yields should settle down. In other news from Asia, the Monetary Authority of Singapore left its monetary stance unchanged at its bi-annual policy meeting, leaving the Singapore dollar on a trade-weighted basis on a ‘modest and gradual appreciation’ path.
He writes, “The band width and where SGD is centred were unchanged. The MAS did lower its inflation projections given current weak economic growth. The decision was as expected and USD/SGD is unchanged, like much of the rest of Asian currencies.”