- JPY strengthens as finance minister rules out foreign bond buying.
- European periphery spreads wider on tension ahead of Italian election.
- We expect the German ZEW and the US NAHB index to surprise on the upside today.
The minutes from the January Bank of Japan (BoJ) meeting, at which the central bank raised the inflation target to 2%, showed two dissented on the decision. Sato and Kikuchi both saw the 2 percent target as too far from what is possible to achieve without risking credibility. Prime Minister Abe stated that the BoJ not attaining the target would be conditional to changing the bank's law. However, the Japanese finance minister stated overnight that buying foreign bonds will not be part of BoJ’s policy. Focus will remain on Japan: Abe is likely to announce the nominees to for the role of governor of the BoJ next week as he returns from his visit to the US.
US markets were closed yesterday, but the S&P future is slightly up this morning. Asian equity markets are mixed. A stronger JPY is weighing on the Nikkei. Chinese stocks are lower again today after the week-long Lunar New Year vacation. However, most other Asian indices have traded higher overnight.
In European bond markets, periphery spreads moved wider again on Monday continuing the weakness from Friday. Tension is centred in on Italy as it heads for the general election this weekend. The outcome is far from certain, and it will determine whether the reform process that was launched by Mario Monti’s technocrat government can continue or whether it will lose substantial momentum.
In FX markets: The JPY strengthened as the Japanese finance minister rejected the idea of the BoJ buying up foreign bonds as part of its monetary policy. Australia’s dollar strengthened after the central bank said that low interest rates are starting to spur economic growth as the outlook for China and the global economy improves. EUR/USD has been broadly stable overnight, and so have the Scandi currencies.
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