Yen Extends Decline As BoJ Prepares To Buy Bonds

The yen dropped sharply as the week started. The Nikkei jumped over 300 pts in initial trading in response to the BoJ's announcement last week. it's reported that the Central Bank could start buying as much as JPY 1.2% in JGB with maturity over five years this week as it rushes to beat deflation. Responses have been overwhelmingly positive. IMF chief Lagarde said that "monetary policies, including unconventional measures, have helped prop up the advanced economies, and in turn, global growth," and hailed that "the reforms just announced by the Bank of Japan are another welcome step in this direction." The USD/JPY rose as high as 98.84 today, while the EUR/JPY finally broke near term resistance at 127.70. The GBP/JPY jumped to as high as 151.69.

The euro is mildly softer against other major currencies on news from Portugal. Prime Minister Pedro Passos Coelho there will be reductions in operating expenses, as the constitutional court blocked a plan to suspend a monthly payment to state workers and pensioners last week. He also warned that the court ruling put Portugal in a "more fragile" position in the negotiation to extend the maturities of the bailout loans. Bundesbank head Weidmann said over the weekend that "it is important to draw the lesson from Cyprus that banks can be wound up" and that should help "limit uncertainty".

Latest CFTC data showed that on April 2, speculations were largely unchanged compared to the previous week, except that there were some build up in euro shorts. Euro net shorts rose again to -65.7 contracts, from -49.1k. Yen net shorts dropped slightly to -78.2k, from -89.1k but that was before the BoJ meeting. Sterling net shorts was basically unchanged at -65.0k, compared to the prior week's -66.6k. Canadian dollar net short was relatively unchanged at -64.5k vs prior week's -62.5k. Aussie net long was relatively unchanged at 84.0k, compared to prior week's 85.5k.

Looking ahead, today's data calendar is rather light; main focus is on the Eurozone Sentix investor confidence and German industrial production. Tueday sees the release of China inflation data, which could drive risk markets in Asia. FOMC minutes will be the focus on Wednesday, and attention will be on any discussion about stimulus exit. The aussie will face some challenges from employment data on Thursday. U.S. retail sales and Eurogroup meetings will be the focus on Friday. The dollar has had positive correlation with US stocks recently, and last week's weak data, the ISM indices and NFP, applied some pressure. Economic data from the U.S. would possibly have a larger impact on the markets ahead.