The Aussie was well-supported for most of the session, likely because of the rise in irn ore prices as well as preemptive bets ahead of the RBA statement, although signs of selling pressure began to show up near the end. The yen, meanwhile, was mixed for most of the session, but got kicked lower across the board near the end, probably because of the dip in the BOJ’s core CPI reading.
- BOJ monetary base y/y: 19.8% vs. 21.2% expected, 20.3% previous
- Caixin Chinese manufacturing PMI: 50.3 vs. 51.4 expected, 51.2 previous
- RBA maintains Cash Rate at 1.5%
- BOJ’s core CPI y/y: -0.1% vs. 0.2% expected, 0.1%. previous
March BOJ meeting minutes
The minutes for the March BOJ meeting, NOT last week’s April BOJ meeting, got released earlier today.
Most of the contents are obviously outdated, but a quick scan of the minutes did show that BOJ officials already saw signs that “Japan’s economy was likely to turn to a moderate expansion” back in March.
With regard to inflation, however, BOJ members were a bit worried that core inflation has been stagnant after trending lower since last year. Moreover, “inflation expectations remained in a weakening phase.”
They also noted that “there had been moves to raise prices of goods and services” and such moves need to be monitored “as they suggested that the virtuous cycle was in place in which inflation would rise accompanied by wage increases.”
And while the BOJ decided to maintain its monetary policy during the March meeting, including its JGB purchases, one member “expressed the view that the substantial increase in the size of JGB purchases in February revealed the weakness of yield curve control, in that the Bank could be forced to purchase a large amount of JGBs to achieve the target it had set for the long-term yield.”
There were also conflicting views on how to conduct monetary policy moving forward. For example, one member argued that the BOJ “should set the amount of increase as the operating target for monetary policy conduct and reduce the amount incrementally so that the sustainability of its policy and the stability of financial markets would be enhanced.” Basically, the BOJ member wanted the BOJ to follow the ECB’s lead.
Meanwhile, another BOJ member argued that “the JGB yield curve … should be a little steeper.” Yet another BOJ member said that “the Bank [should] reduce the amount of purchases to the extent possible in preparation for the uncertainties ahead, such as a slowdown in overseas economies.”
Iron ore jumps
Iron ore surged by 5.8% to 539 yuan per dry metric ton during the Asian session. And market analysts attributed that to the jump in Chinese steel futures amid post-holiday demand from China.
The RBA maintained the Cash Rate at 1.5% as expected. And looking at the official press statement, it looks like the RBA’s tone is noticeably more neutral overall when compared to the previous press statement at least.
For one, the RBA was worried about the labor market in the previous statement when it highlighted that “some indicators of conditions in the labour market have softened” and that “Wage growth remains slow.”
In today’s statement, however, the RBA noted the pick up in employment growth and that “various forward-looking indicators still point to continued growth in employment over the period ahead,” so the “unemployment rate is expected to decline gradually over time.” The RBA noted that wage growth was still slow, though, and “is likely to remain the case for a while yet.”
The RBA also highlighted the pickup in inflation, adding that a “gradual further increase in underlying inflation is expected as the economy strengthens.”
With regard to growth outlook, the RBA’s “forecasts for the Australian economy are little changed.”
As for the housing market, the RBA is still expressed concern about housing market conditions. The RBA even added the phrase “Rent increases are the slowest for two decades” to its assessment, so the housing market conditions may have deteriorated. In addition, the RBA reiterated its warning that “Growth in housing debt has outpaced the slow growth in household incomes.”
BOJ core CPI dips
The BOJ’s own measure for core inflation (headline less fresh food and energy) has been trending lower since February 2016 and finally entered negative territory when it dipped by 0.1% year-on-year during the March period. The reading also missed expectations that it would tick higher to 0.2%, so the miss is twice as disappointing.
Major Market Mover(s):
The Aussie was well-supported ahead of the RBA statement, very likely because of the rise in iron ore prices, although preemptive buying is also a possibility. And when the RBA statement rolled around and the RBA sounded a bit more neutral compared to last time, the Aussie tried to jump higher. However, sellers were apparently lurking, since the bullish reaction to the RBA statement got faded. Well, that or Aussie bulls who had preemptive positions were taking profits off the table.
AUD/USD was up by 14 pips (+0.19%) to 0.7536 with 0.7556 as session high, AUD/JPY was up by 26 pips (+0.32%) to 84.39 with 84.53 as session high, AUD/CHF was up by 17 pips (+0.23%) to 0.7502 with 0.7522 as session high
The yen had a mixed performance for most of the session before getting sellers near the end. The only catalyst was the dip in the BOJ’s core reading, and that may have been the trigger since poor underlying inflation means that the BOJ’s easy monetary policy will very likely stay around for a while.
USD/JPY was up by 15 pips (+0.14%) to 111.99, CHF/JPY was up by 39 pips (+0.35%) to 112.52, CAD/JPY was up by 18 pips (+0.23%) to 81.92
Watch Out For:
- 7:15 am GMT: Spanish manufacturing PMI (54.3 expected vs. 53.9 previous)
- 7:30 am GMT: Swiss manufacturing PMI (58.2 expected, 58.6 previous)
- 7:45 am GMT: Italian manufacturing PMI (55.9 expected, 55.7 previous)
- 7:50 am GMT: French final manufacturing PMI (unchanged at 55.1 expected)
- 7:55 am GMT: German final manufacturing PMI (unchanged at 56.8 expected)
- 8:30 am GMT: U.K. manufacturing PMI (54.0 expected, 54.2 previous)
- 9:00 am GMT: Euro Zone jobless rate (9.4% expected, 9.5% previous)