The Japanese yen strengthens broadly on risk aversion as global equities tumbled sharply ahead of an important weekend in Crimea, which is now seen as having the biggest geopolitical crisis in Europe since the Cold War. DOW closed -231 pts, or -1.4% lower at 16108.89 overnight while S&P 500 dropped -21.9pts, or -1.2%, to 1846.34. Asia equities followed with Nikkei dropping over-400 pts, or -2.7% at the time of writing. HK HSI is also losing over -250 pts, or -1.1%. In the currency markets, the yen is the clear winner in the current market situation while sterling is the biggest loser. Kiwi stayed firm after the hawkish RBNZ hike earlier this week and maintains gain against other major currencies except yen. Dollar and Euro are mixed with EUR/USD losing momentum ahead of 1.4 handle.
Investors are getting cautious on persisting tensions in Ukraine. The Crimean parliament has brought forward the date of a referendum for people there to decide whether to join Russia or stay with Ukraine. However, G7 has already criticize3d that the referendum will have "no legal effect" and threatened actions is Russia doesn't back down down. US also warned that it's preparing a "very serious" response together with European to the vote. Meanwhile, there were reports of Russian troop movements near the border of Ukraine. And, it's a general consensus that it's highly uncertain on what Russia would do after the referendum. Investors are also pricing in the chance of Iran-Style sanctions as the worst case scenario.
Elsewhere, ECB president Draghi said yesterday that the forward guidance "creates a de facto loosening of policy stance, as real interest rates are set to fall over the projection horizon." And, "at the same time, the real interest-rate spread between the euro area and the rest of the world will probably fall, thus putting downward pressure on the exchange rate, everything else being equal." That is, he's expecting the forward guidance to help weaken the common currency. Meanwhile, he also noted again that low inflation in "currently more relevant" than high inflation even though the risk of deflation is "quite limited. He pledged that "any material risk of inflation expectations becoming unanchored will be countered with additional monetary policy measures."
Minutes of February BoJ meeting released today showed that policy makers generally believed that the planned sales tax hike in April would not derail the economy. And, the developments in economy and inflation are so far still in line with their projections. Nonetheless, "a few members expressed the view that future economic developments depended on whether an increase in exports and business fixed investment could offset the reversal decline in private consumption following the consumption tax hike,"
On the data front, main focus today will be inflation data with Germany CPI, Swiss PPI and US PPI featured.