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9 Apr 2013
Forex Flash: BoJ easing supporting renewed risk taking behaviour - BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the yen has continued to weaken in the Asian trading session with USD/JPY moving to within touching distance of the psychologically important 100-level.
He sees that the announcement of the BoJ´s aggressive monetary easing plan has also encouraged renewed risk seeking behaviour by global investors as well and yen weakness. He adds that global investors are anticipating that the announcement will prompt a significant shift amongst Japanese investors to increase exposure to riskier assets, including foreign assets in order to capture higher yields boosted by the flood of new liquidity into the system from the BoJ.
As a result, he sees that yields outside of Japan have continued to converge with Japanese yields, even as they have adjusted lower still. French and Austrian benchmark 10-year yields declined to new record lows yesterday. He adds that high beta currencies have also benefitted from the renewed risk seeking behaviour with the high yielding Hungarian forint, South African rand, Brazilian real, and Mexican peso amongst the top performing currencies since the BoJ policy meeting on the 4th April.
In contrast, Hardman notes that the South Korean won has continued to weaken in sympathy with the yen helping to dampen the erosion in South Korea’s external trade competitiveness relative to Japan, while the US dollar and Canadian dollar have also underperformed reflecting both the easing of safe haven demand and building US economic slowdown concerns. He finishes by writing “Improving investor risk sentiment was further reinforced overnight by the weaker than expected inflation report from China. The report revealed that the annual rate of inflation decelerated sharply to 2.1% in March from 3.2% in February which was mainly driven by the seasonal fall in food prices after the Chinese New Year as well as reduced demand for pork and poultry reflecting the recent “dead pig incident” and bird flu concerns. The annual rate of inflation has averaged around 2.4% in Q1 which may ease further in Q2. As a result the PBoC is not likely to be under pressure in the near-term to tighten monetary and credit policies.”
He sees that the announcement of the BoJ´s aggressive monetary easing plan has also encouraged renewed risk seeking behaviour by global investors as well and yen weakness. He adds that global investors are anticipating that the announcement will prompt a significant shift amongst Japanese investors to increase exposure to riskier assets, including foreign assets in order to capture higher yields boosted by the flood of new liquidity into the system from the BoJ.
As a result, he sees that yields outside of Japan have continued to converge with Japanese yields, even as they have adjusted lower still. French and Austrian benchmark 10-year yields declined to new record lows yesterday. He adds that high beta currencies have also benefitted from the renewed risk seeking behaviour with the high yielding Hungarian forint, South African rand, Brazilian real, and Mexican peso amongst the top performing currencies since the BoJ policy meeting on the 4th April.
In contrast, Hardman notes that the South Korean won has continued to weaken in sympathy with the yen helping to dampen the erosion in South Korea’s external trade competitiveness relative to Japan, while the US dollar and Canadian dollar have also underperformed reflecting both the easing of safe haven demand and building US economic slowdown concerns. He finishes by writing “Improving investor risk sentiment was further reinforced overnight by the weaker than expected inflation report from China. The report revealed that the annual rate of inflation decelerated sharply to 2.1% in March from 3.2% in February which was mainly driven by the seasonal fall in food prices after the Chinese New Year as well as reduced demand for pork and poultry reflecting the recent “dead pig incident” and bird flu concerns. The annual rate of inflation has averaged around 2.4% in Q1 which may ease further in Q2. As a result the PBoC is not likely to be under pressure in the near-term to tighten monetary and credit policies.”