Key Overnight Developments
• Japan’s Jobless Rate Unexpectedly Rises, Deflation Accelerates
• Euro, Pound Decline as US Dollar Retraces NY-Session Losses
Critical Levels
The Euro and the British Pound tracked lower in Asian trade, down 0.5 and 0.3 percent respectively against the US Dollar, as currency markets digested a sharp rebound in risk appetite in New York hours. We remain short EURUSD at 1.4881.
Asia Session Highlights
Japan’s Jobless Rate unexpectedly increased for the second month to 5.1 percent in April while the ratio of available jobs to seeking applicants fell to 0.48 – marking the first decline in eight months – as the economy shed 280,000 jobs. The outcome hints that buoyant export growth is not translating into hiring, suggesting firms may be reluctant about future demand. This seems well-grounded considering much of the boom in overseas sales has been driven by shipments to China, where policymakers are actively trying to slow growth amid fears of asset bubbles and runaway inflation.
Meanwhile, deflation continued to deepen, with the core Consumer Price Index (excluding volatile items like energy and fresh food) falling 1.6 percent in the year to April to mark the largest decline in at least 33 years. The outcome suggests the Bank of Japan will (at least) retain its accommodative posture for the foreseeable future and is likely to face increasingly intense government pressure to ease monetary conditions further with direct asset purchases. Indeed, the Ministry of Finance has been keen to get the central bank buying government bonds as a way to keep borrowing costs in check as policymakers move to finance a hefty fiscal deficit.
Euro Session: What to Expect
The economic calendar looks decidedly tame in European hours, with Switzerland’s Trade Balance and KOF Leading Indicator figures being the only significant items on the docket. This suggests that risk sentiment will continue to dominate currency markets, with US equity index futures ticking down 0.4 percent and hinting that the US Dollar and Japanese Yen are poised to resume their advance again.
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