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Will US Session Push USD/JPY to Fresh Yearly High?

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Top Stories

  • USD/JPY break to new highs on Shirakwa comments M&A Flow
  • Risk FX short covering rally fades in Europe
  • Nikkei up 0.09% Europe up 0.78%
  • Oil at $106.85/bbl
  • Gold at $1698/oz.

Overnight Eco

  • AUD Home Loans (JAN) -1.2% vs. 0.5%
  • AUD NAB Business Confidence (FEB) 1 vs. 4
  • AUD NAB Business Conditions (FEB)
  • JPY Tertiary Industry Index (MoM) (JAN) -1.7% vs. 0.4%
  • EUR German ZEW Survey (Economic Sentiment) ( MAR ) 22.3 vs. 10.6
  • EUR German ZEW Survey (Current Situation) ( MAR ) 11.0 vs. 3.8
  • EUR Euro-Zone ZEW Survey (Economic Sentiment) ( MAR ) n/a
  • GBP RICS House Price Balance (FEB) -13 vs. -14
  • GBP Visible Trade Balance (Pounds) (JAN) -7.5B vs. -7.8B

Event Risk on Tap

  • USD Advance Retail Sales (FEB) expected at 1.0%
  • USD Retail Sales Less Autos (FEB) expected at 0.7%

Price Action

  • USD/JPY takes out yearly highs at 82.75
  • AUD/USD recovers towards 1.0550
  • GBP/USD steady at 1.5650
  • EUR/USD early rally fades but stabilizes at 1.3150

USD/JPY hit fresh year to date highs rising to 82.75 in early European trade today after dovish comments by BOJ Governor Shirakawa boosted the pair. Mr. Shirakawa stated that the central bank will continue to fight deflation but stressed that the government and private sector must also make efforts to boost the country's potential growth. The BOJ board kept monetary policy steady after last month's surprise easing but extended a loan scheme for growth sectors.

In comments to the press Mr. Shirakawa stated that, "The task of overcoming deflation and achieving sustainable economic growth with price stability cannot be realized overnight. The issue of beating deflation is strongly related to how growth potential should be strengthened and patient effort is needed to tackle this problem. The BOJ will continue to do the best we can as a central bank. At the same time, I strongly expect that parties concerned such as companies, financial institutions and the government will do their utmost while fully recognizing the importance of strengthening growth potential.

In managing policy, we must ensure that the economy is headed toward a path of sustainable growth and price stability. Given that the cause of deflation is structural problems such as Japan's low growth potential, we cannot expect to achieve our goal immediately."

Mr. Shirakawa's comments suggest that the BOJ has now changed tactics with respect to currency management. Instead of relying on intervention which has proven woefully ineffective in weakening the yen, the Japanese monetary authorities are looking at QE as a much viable policy tool to control any appreciation of the currency. Although the BOJ chose not to make any further easing moves today, Mr. Shirakawa's rhetoric was clearly intended to send a message to the market that the Japanese central bank stands ready to match the Fed in any QE policy action in order to prevent yet another round of yen strengthening.

Elsewhere the rally in risk FX during the Asian session trade ran out of steam by early European dealing with EUR/USD stalling at 1.3190 as it drifted back to 1.3150. On the economic front the ZEW investor sentiment survey printed much better than forecast at 22.3 versus 10.6 eyed as credit tensions in the region continued to ease. The data, however, had no impact on the pair as focus on the currency remained on North American calendar.

As we noted earlier, today's US Retail Sales and FOMC statement could prove critical to extending the dollar rally. With weekly data suggesting very strong consumer demand in February chances are good that US Retail Sales could beat the market estimates of 1.1% gain. If the statement from the FOMC acknowledges the recent strength in the US economy it would suggest that Fed officials are less likely to consider any additional accommodative policy moves and as such could push the dollar higher across the board. In short, if both the US economic data and monetary policy surprise to the upside, USD/JPY could mount a run towards the 83.00 figure setting yet another fresh yearly high as the day progresses.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Advance Retail Sales (FEB) 1.0% 0.4%
USD 12:30 8:30 Retail Sales Less Autos (FEB) 0.7% 0.7%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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