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Yen Soars as BOJ Holds Back on Stimulus, EU Summit Now in Focus

By , Currency Strategist
23 May 2012 07:09 GMT

Talking Points

  • Japanese Yen Soars on BOJ Policy Hold, Greece-Linked Stocks Selloff
  • Euro at Risk if EU Summit Fails to Offer Concretely Supportive Rhetoric
  • Bank of England Minutes Unlikely to Stir Fireworks from Price Action
  • S&P 500 Stock Index Futures Point to Continued Risk Aversion Ahead

The Japanese Yen soared against its top counterparts in overnight trade, adding as much as 0.7 percent on average, after the Bank of Japan opted to keep all the elements of its monetary policy regime unchanged. Traders were expecting to see Maasaki Shirakawa and company expand stimulus as the BOJ attempts to meet its inflation target of 1 percent, which would require doubling the rate of price growth recorded as of March.

The BOJ announcement compounded existing sentiment-driven upward pressure on the Japanese unit as Asian stocks sank, driving capital into the haven currency. The rout likely reflects jitters ahead of today’s EU leader’s summit as traders ponder an endgame to the latest debt crisis flare-up that may include Greece’s exit from the Eurozone. Not surprisingly, the stocks-linkedAustralian and New Zealand Dollars bore the brunt of risk aversion in the FX space.

The EU sit-down is being billed as an “informal” working dinner. German officials were busy taking to the wires yesterday to pour cold water on expectations for what may emerge at its conclusion. A statement on Greece, the issuance of joint Eurobonds or any specific policy decisions in general are – according to German sources cited across the spectrum of newswires – not to be. That has left traders understandably confused as to what will in fact be said.

If the German public line is taken at face value, the conversation will center on the European Investment Bank (EIB) and how it can be used more effectively to boost growth, presumably without compromising deficit-reduction efforts. If that is indeed the case, disappointed selling seems likely to descend upon the Euro and spectrum of risky assets at large. S&P 500 stock index futures point to a decidedly dour mood across financial markets, trading down 0.5 percent ahead of the opening bell in Europe.

Elsewhere on the calendar, minutes from this month’s Bank of England rate decision seem unlikely to generate significant fireworks from price action after hawkish overtones that seemingly emerged at the April sit-down were swiftly scattered with last week’s quarterly Inflation Report. Yesterday’s soft CPI print also helped on this front, muting the shock value of a dovish outcome while arguing forcefully against a hawkish one.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Merchandise Trade Balance Total (¥) (APR)

-520.3B

-470.8B

-84.5B

23:50

JPY

Adj. Merchandise Trade Balance (¥) (APR)

-480.2B

-617.2B

-616.6B

23:50

JPY

Merchandise Trade Exports (YoY) (APR)

7.9%

11.8%

5.9%

23:50

JPY

Merchandise Trade Imports (YoY) (APR)

8.0%

10.1%

10.6%

0:00

AUD

Conference Board Leading Index (MAR)

0.2%

-

0.0%

0:30

AUD

Westpac Leading Index (MoM) (MAR)

0.4%

-

0.0% (R-)

1:00

AUD

DEWR Internet Skilled Vacancies (MoM) (APR)

-0.8%

-

-0.5% (R-)

2:37

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:00

EUR

Italy Consumer Confidence Index (MAY)

89.5

89.0

Low

8:00

EUR

Euro-Zone Current Account n.s.a. (€) (MAR)

-

-5.9B

Low

8:00

EUR

Euro-Zone Current Account s.a. (€) (MAR)

-

-1.3B

Low

8:30

GBP

Retail Sales ex Auto Fuel (MoM) (APR)

-0.7%

1.5%

Medium

8:30

GBP

Retail Sales ex Auto Fuel (YoY) (APR)

0.7%

2.8%

Medium

8:30

GBP

Retail Sales w/Auto Fuel (MoM) (APR)

-0.8%

1.8%

Medium

8:30

GBP

Retail Sales w/Auto Fuel (YoY) (APR)

1.0%

3.3%

Medium

8:30

GBP

Bank of England Minutes

-

-

High

10:00

GBP

CBI Trends Total Orders (MAY)

-11

-8

Low

10:00

GBP

CBI Trends Selling Prices (MAY)

5

7

Low

17:00

EUR

EU Leaders Hold Summit in Brussels

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2559

1.2783

GBPUSD

1.5678

1.5826

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

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23 May 2012 07:09 GMT