Yen Mildly Higher As US Equities Retreat

The yen strengthens mildly as US equities indices retreated from record high. Asian stocks also opened lower but quickly pared back some losses. BoJ deputy governor Nakaso said today that the central bank has an "extensive" range of tools for existing the so called quantitative and qualitative easing program (QQE). He emphasized that "the bank is still in the midst of striving to achieve the price stability target of 2% at the earliest possible time, and exit policies should be designed depending on the then-prevailing economic and inflation situation." And he noted that while BoJ is still confident to reach the 2% inflation target in two years, QQE may not be ended then as BoJ aims to sustain that inflation level.

The dollar is struggling to sustain the momentum of the rally started last week. The greenback would need some fresh stimulus to extend the rise and focus will be on the FOMC minutes to be released on Wednesday. Both JP Morgan and Goldman Sachs have moved forward their forecasts for the first Fed rate hike after the global financial crisis. Both now forecast that the rate hike would occur in 3Q15, compared with previous estimates of 4Q15 and 1Q 16 respectively. Goldman's Jan Hatzius, despite a dove, noted that changes in inflation, employment situation market and financial conditions over the past few months triggered the shift. He expected US' economy "is accelerating to an above-trend pace", despite the "striking weakness in the first-quarter GDP report". He also revised lower the outlook of the unemployment rate to 5.9% at the end of the year and 5.4% at the end of 2015.

On the data front, Japan current account surplus widened to JPY 0.38T in May. Australian NAB business confidence rose to 8 in June. Germany will release trade balance today. But focus will be on Swiss and UK data. Switzerland's inflation should have stayed at low level. Headline CPI probably remained at 0.2% yoy in June, same as May's reading. Last month, the SNB reiterated its commitment to maintain the EUR/CHF floor at 1.20, noting that the central bank would "continue to enforce the minimum exchange rate with the utmost determination". It is "prepared to purchase foreign currency in unlimited quantities for this purpose, and to take further measures as required". The SNB also raised its 2014 inflation outlook to 0.1% from 0% while revising the 2015 outlook lower to 0.3% from 0.4%. In 2016, the SNB said it expected inflation of 0.9%. In the UK, industrial production might have gained 3.2% yoy in May, up from 3% a month ago. Manufacturing production probably expanded 5.6% yoy in May after a 4.4% gain in April.