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26 Mar 2013
Forex Flash: Fears that Cypriot package could spark capital flight from Eurozone - BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the euro has remained under downward pressure following the announcement of the financial support package agreement for Cyprus with investors nervous that it could trigger capital flight from the euro-zone in the near-term.
He suspects that the heightened investor uncertainty in the near term has created more risk averse trading conditions supporting the yen nevertheless. Still, he adds that the yen rebounded so far, heading into the upcoming BoJ monetary policy meeting on April 3-4, but the move has been modest. He believes that investors are expecting the new BoJ leadership to announce a shift to more aggressive monetary easing at their first policy meeting, which continues to weigh upon the yen. Hardman comments that BoJ Governor Kuroda spoke to the Diet overnight stating that the BoJ will consider all possible measures to lower the yield curve. He reiterated that the BoJ will consider extending maturities of government bonds purchased in order to increase purchases of long-term government bonds. He also reiterated that the BoJ is likely to consider scrapping the bank note rule which states the BoJ may not hold more long-term JGBs than the amount of banknotes in circulation
He continues to highlight that currently the BoJ holds around JPY67.4 trillion of JGBs purchased through its rinban operations which is below the JPY82.7 trillion of banknotes in circulation. However, the BoJ’s total JGB holdings exceed that limit when including those purchased through its asset purchase programme which brings total JGBs held to around JPY94 trillion. He feels that by scrapping the banknote rule the BoJ could integrate JGB purchases through the rinban and APP helping to simplify its policy framework potentially having a clearer impact on market expectations. Further, Kuroda also stated that the 2.0% inflation target is to be achieved “as soon as possible” and that “achieving it in two years is something that I have in mind, and will take responsibility to achieve that obligation”.
Hardman finishes by commenting that, “Finance Minister Aso also spoke confirming that Japan’s unrealized loss on foreign exchange reserves was JPY21 trillion as of the 25th March which had narrowed from about JPY41 trillion at the end of March 2012 as USD/JPY has risen from around 83.00 to 94.00. He also emphasized that FX intervention is effective in tackling speculative driven moves.”
He suspects that the heightened investor uncertainty in the near term has created more risk averse trading conditions supporting the yen nevertheless. Still, he adds that the yen rebounded so far, heading into the upcoming BoJ monetary policy meeting on April 3-4, but the move has been modest. He believes that investors are expecting the new BoJ leadership to announce a shift to more aggressive monetary easing at their first policy meeting, which continues to weigh upon the yen. Hardman comments that BoJ Governor Kuroda spoke to the Diet overnight stating that the BoJ will consider all possible measures to lower the yield curve. He reiterated that the BoJ will consider extending maturities of government bonds purchased in order to increase purchases of long-term government bonds. He also reiterated that the BoJ is likely to consider scrapping the bank note rule which states the BoJ may not hold more long-term JGBs than the amount of banknotes in circulation
He continues to highlight that currently the BoJ holds around JPY67.4 trillion of JGBs purchased through its rinban operations which is below the JPY82.7 trillion of banknotes in circulation. However, the BoJ’s total JGB holdings exceed that limit when including those purchased through its asset purchase programme which brings total JGBs held to around JPY94 trillion. He feels that by scrapping the banknote rule the BoJ could integrate JGB purchases through the rinban and APP helping to simplify its policy framework potentially having a clearer impact on market expectations. Further, Kuroda also stated that the 2.0% inflation target is to be achieved “as soon as possible” and that “achieving it in two years is something that I have in mind, and will take responsibility to achieve that obligation”.
Hardman finishes by commenting that, “Finance Minister Aso also spoke confirming that Japan’s unrealized loss on foreign exchange reserves was JPY21 trillion as of the 25th March which had narrowed from about JPY41 trillion at the end of March 2012 as USD/JPY has risen from around 83.00 to 94.00. He also emphasized that FX intervention is effective in tackling speculative driven moves.”