The mighty yen extended its gains from earlier and easily steamrolled all its peers during the morning London session, even though risk-taking was the dominant sentiment in Europe.
The pound, meanwhile, was feeling a bit under the weather, even though there weren’t really any apparent catalysts.
- U.K. public sector net borrowing: £1.0B vs. £4.3B expected, £6.6B previous
- German ZEW economic sentiment: 20.4 vs. 17.7 expected, 17.4 previous
- Euro Zone ZEW economic sentiment: 31.8 vs. 29.7 expected, 29.0 previous
- CBI’s U.K. industrial order expectations: 14 vs. 13 expected, 17 previous
BOJ Shogun Kuroda speaks
BOJ Shogun Haruhiko Kuroda held a press conference earlier during the late Asian session and about two hours before the morning London session rolled around.
And, well, Kuroda didn’t really have anything new to add to the BOJ’s not-so-dovish message from the BOJ statement earlier .
However, Kuroda did try to push back against growing expectations that the BOJ will soon be following the other major central banks by tightening policy or at least hinting at a future exit from the BOJ’s super loose policy.
And Kuroda did this by trying to downplay the BOJ’s more optimistic inflation outlook.
To quote from the Shogun himself (emphasis mine):
“Japan’s economy is expanding moderately but inflation remains weak. Other countries are facing similar situations but unlike these countries, many of whom are seeing inflation move around 1.5 percent, inflation excluding energy costs is barely above zero percent in Japan.
“There is still some distance to 2 percent inflation, so we’re in no condition yet to debate the timing of an exit from ultra-easy monetary policy.”
“For Japan’s economy, it’s important for the BOJ to patiently continue with powerful monetary easing.”
Do note the emphasized part, though, the part where Kuroda mentions that the BOJ is “in no condition yet to debate the timing of an exit from ultra-easy monetary policy.”
That shows where the BOJ is leaning towards, which is to tighten monetary policy in the future. Kuroda is just saying that it isn’t time yet to make a move, which is a bit hawkish. And yen bulls may have picked up on that sliver of a hawkish message.
Another risk-friendly day in Europe
Europe is having another upbeat day today since the major European equity indices opened higher and maintained or added to their gains during the course of the morning London session.
And the risk-friendly vibes, market analysts say, was due to relief buying after the U.S. government shutdown was resolved, which placed global growth prospects back in focus again.
- The pan-European FTSEurofirst 300 was up by 0.12% to 1,582.92
- Germany’s DAX was up by 0.60% to 13,542.50
- The blue-chip Euro Stoxx 50 was up by 0.19% to 3,669.50
Global bond yields plunge
Despite signs of risk-taking in the European equities market, global bond yields took a dive as demand for bonds ramped up.
And some market analysts say that the slide in bond yields was prompted by strong demand for European bonds, namely Spanish and Portuguese bonds, due to easing political worries and after ratings agency Fitch upgraded Spain’s credit rating last Friday.
Other market analysts, meanwhile, said that the BOJ’s attempts to push back against taper talks is the reason for the high demand for European bonds since that supposedly raised expectations that the ECB will also try to push back against taper talks in tomorrow’s ECB statement.
- German 10-year bond yield down by 1.60% to 0.554%
- French 10-year bond yield down by 1.99% to 0.833%
- U.K. 10-year bond yield down by 1.32% to 1.341%
- U.S. 10-year bond yield down by 1.46% to 2.624%
- Canadian 10-year bond yield down by 0.80% to 2.221%
Major Market Mover(s):
The yen was the best-performing currency of the morning London session and is also on track to finishing as the best-performing currency of the day.
Risk-taking was the more dominant sentiment during the session, but yen bulls were very likely more interested in what BOJ Shogun Kuroda had to say.
And initially, the yen gave back some of its earlier gains when Kuroda began to speak, but yen bulls later came back in force, likely because Kuroda implied that the BOJ’s next move will be to tighten monetary policy. It just so happens that the BOJ is not ready to pull the trigger just yet.
Other than that, it’s also very likely that the yen was getting a boost from the plunge in global bond yields during the session.
USD/JPY was down by 48 pips (-0.42%) to 110.51, AUD/JPY was down by 34 pips (-0.39%) to 88.07, GBP/JPY was down by 80 pips (-0.52%) to 154.17
The pound was the worst-performing currency of the session. There weren’t really any apparent catalysts, so market analysts just shrugged their shoulders and attributed the pound’s slide on profit-taking by pound bulls after GBP/USD briefly breached the key area of interest at 1.4000.
GBP/USD was down by 13 pips (-0.10%) to 1.3949, GBP/NZD was down by 23 pips (-0.12%) to 1.9055, GBP/CHF was down by 17 pips (-0.13%) to 1.3417
Watch Out For:
- 3:00 pm GMT: Euro Zone consumer confidence index (steady at 1 index point expected)
- 3:00 pm GMT: Richmond Fed’s U.S. manufacturing index (19 expected, 20 previous)