BoJ has to work to weaken JPY

There was a ‘small' percentage of a chance that the BoJ was to continue along the easing path earlier this week after last month's surprise announcement. However, Governor Shirakawa refrained from expanding monetary easing to counter deflation, resisting pressure from his fellow politicians who only days ago rejected a nominee for the policy board. The BoJ kept the key interest rate between zero and +0.1% and left its +JPY30t asset-purchase fund and +JPY35t credit-lending program unchanged. Post announcement has seen fresh JPY cross weakness, especially against the EUR. The Governor has promised that the BoJ will conduct a particularly careful examination at their next meeting. The market is interpreting this as suggesting a high probability that the BoJ will implement some sort of easing measures when it announces its Outlook report on 27 April.

Below are some other highlights of the week:

Asia

• CNY: China's CPI inflation rose to +3.6%, y/y, in March from +3.2% in February, higher than the consensus forecast for +3.4%. However, inflation has stayed subdued, remaining below the psychological +4% for the second successive month. Analysts expect it to remain on the tepid side for the next six months. A small percentage of the market expects a -50bp cut in commercial banks' reserve requirement ratio (RRR) later this month.
• JPY: Japan's current account balance returned to a surplus of +JPY854b in February. Market had been expecting a +JPY650b (sa) surplus. Being back in surplus, perhaps Governor Shirakawa needs to be more aggressive with the BoJ's easing policy to weaken the yen? A tough ask in this risk aversion environment.
• TWD: Taiwan's exports fell -3.2%, y/y, in March, less than estimate (-4.5%). However, on a sequential seasonally adjusted basis, exports fell -10%, m/m, in March. Is this an emerging FX trend? The lack of signs of a more significant recovery in Asia exports is likely to weigh on Asia FX.
• JPY: BoJ Governor Shirakawa refrained from expanding monetary easing to counter deflation, resisting pressure from his fellow politicians who last week rejected a nominee for the policy board. The BoJ have kept the key interest rate between zero and +0.1% and left its +JPY30t asset-purchase fund and +JPY35t credit-lending program unchanged.
• CNY: China reported an unexpected trade surplus last month as import growth trailed forecasts, emphasizing the risks of a deeper slowdown in the world's second-largest economy. Inbound shipments rose +5.3%, well below the +9% estimated. Exports increased +8.9% from a year earlier, providing us with a trade surplus of +$5.35b, compared with a projection for a -$3.15b trade deficit.
• AUD: Aussie business confidence improved last month as the NAB business confidence index rose +2 points to reach +3 in March. Other data revealed that ANZ job advertisements increased +1%, m/m, in March to reach the highest level in nearly four-years, compared with a +3.3% rise in February.
• Asia: Mid-week, risk appetite tried to make a timid comeback after a stronger than expected opening to the Q1 earnings season in the US, “interrupting a multi-day sell off across asset classes.”
• JPY: Japan's bank lending rose +0.8%, y/y, in March, a fifth consecutive increase following a +0.6% rise in February. Machinery orders surprised strong, up +4.8% in February after rising +3.4% in January.
• AUD: The Aussie Westpac consumer confidence index fell -1.6% in April to 94.5 from 96.1 in March (its lowest level in eight-months). Home loans were down -2.5%, m/m, in February, compared with a revised -1.1% fall in January.
• NZD: The New Zealand Institute of Economic Research business opinion indicator rose to 13 in Q1 from 0 in Q4 last year.
• INR: The Reserve Bank of India this week reiterated its concerns on inflation and a widening current account deficit in a meeting with economists a week before its annual monetary policy review.
• AUD: Aussie payrolls rose by +44k in March, more than the consensus forecast for +6.5k. The details were strong with both full and part-time employment rising on the month. The unemployment rate was unchanged at +5.2% after a +0.2 point rise in the participation rate to +65.4% and hours worked rose 9.5m. AUD yields rose in response to reduced pricing for RBA rate cuts. Do not be surprised that the RBA “is likely to err on the side of caution and cut rates -25bp at its May meeting”; and this despite the consumer inflation expectation rising to +3.3% in April from +2.7% in March.
• CNY: China's new loans rose a larger than expected +CNY1.01t vs. the consensus forecast for +CNY800b. Premier Wen and PBoC Governor Zhou have both been promoting lending, especially to SME's in recent weeks.
• NZD: Kiwi credit card spending fell by -0.2%, m/m, in March from a fall of -0.3% in February.
• JPY: Japan's Domestic Corporate Goods Price Index rose +0.6%, m/m, in March, up from a rise of +0.2% in the prior month. Growth in money supply, M2 and M3, has accelerated to +3.0% and +2.6% in March.
• KRW: South Korea's jobless rate fell to +3.7% in March from +4.2% in February. The fall was driven by a rise in service sector jobs.
• CNY: Chinese data showed GDP growth slowing to +8.1% in Q1 from +8.9% in Q4 and below consensus expectations of +8.5%. It was the slowest pace of growth recorded in three-years. Add this report to some of the other regional poor numbers recorded this year and it seems the market will have to postponing or push out China's bottoming out process beyond this summer. Again, the market will be raising the question of ‘hard or soft' landing for the world's second largest economy?
• BoJ: Governor Shirakawa has vowed to pursue ‘powerful easing' to overcome deflation.
• SGD: The Monetary Authority of Singapore (MAS) surprised on the hawkish side on Friday, increasing the slope of the appreciation path and narrowing the policy bands of the SGD NEER. Analysts guesstimate that the new pace of appreciation is likely to be +2-3% per annum versus about +1-2% previously.
• SGD: GDP rose an annualized +9.9%, q/q, in Q1, well above the market consensus for +6.8%. Activity was boosted by a near +15% rise in manufacturing production, while construction output jumped a whopping +25%.
• KWR: The BoK kept the policy rate unchanged at +3.25% as widely expected. The statement acknowledged signs of moderate recovery in domestic economic growth and re-affirmed the central bank's stance to bring down inflation expectations.

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