- G20 meeting ended without any direct criticism of Japan's expansionary policy.
- USD/JPY is back at 94 and the Nikkei index is up close to 2%.
- Today should be fairly quiet with only tier-2 data and the US closed for Presidents' day but keep an eye on ECB president Draghi's speech at the European Parliament.
The G20 meeting in Moscow ended without any direct criticism of Japan’s expansionary policies, and the USD/JPY is back trading at 94 after reaching a 92.23 intraday low on Friday. Finance ministers and central bank governors of the G20 did state that they ‘will refrain from competitive devaluation’ and that they will not target exchange rates for ‘competitive purposes’ ,but there appears to be an understanding of the need for Japan to ease economic policy in order to stabilise its economy and escape deflation.
The discussion of a ‘currency war’ is also somewhat arbitrary, as all monetary policy changes have the potential to affect a country’s exchange rate and therefore one could also label interest rate cuts as currency manipulation. It is now quite clear that there will be no international criticism of Japan, as long as its exchange rate is not the target of its economic policies. This is positive for financial markets and the global economy, as expansionary monetary policy in the major economies is helping to stabilize global growth (see FX Strategy: There is no such thing as a global currency war, 12 February). It will be increasingly difficult for Japan to provide verbal guidance on the yen going forward, but as long as the BoJ is rapidly expanding its balance shee,t pressure should remain on the yen.
The Nikkei index is up about 2% and in general, Asian markets are trading higher this morning - with China underperforming as its markets have reopened after the holiday. The 10-year US treasury yield closed at 2% on Friday after trading as high as 2.06% on Thursday. Our rate strategy team forecasts further losses in the long end on the back of improving global macro data (see Yield Forecast Update - Global recovery to push long-end rates higher, 15 February).
Chinese retail sales rose during the week-long New Year festival at the slowest pace in four years. Sales at shops and restaurants were monitored by the Ministry of Commerce increasing at 14.7% y/y down from 16.2% last year. Increased focus on bringing down extravagant spending by officials on food and drinks has been mentioned as one factor depressing sales. These data does not change the overall picture of growth improvement in China, as illustrated by last week’s money supply data.
To Read the Entire Report Please Click on the pdf File Below.