Renewed Yen Selling On BOJ Expectations

The yen is under renewed pressure in today's Asian session, and drops to new low against the dollar on the BoJ's easing expectations. BoJ deputy governor nominee Iwata said that it can achieve the 2% inflation target within two years by buying long-term bonds, and urged that the central bank needs "decisive easing". He played down the risk of boosting the buying of risk assets. Another deputy governor nominee Nakaso also said that BoJ could have expanded the size of the asset purchases. Yesterday, BoJ governor nominee Kuroda signaled that the central bank would pursue aggressive easing soon after his offcial tensure begins. Meanwhile, BoJ minutes for February 13-14 meeting noted that some board members considered buying longer JGBs as options, if further monetary easing is needed. Data released from Japan saw domestic CGPI dropped -0.1% yoy in February, Tertiary industry index dropped -1.1% mom in January, BSI large manufacturing index dropped to -4.6 in Q1.

Broad based rally in Asian equities and weakness in yen helped push the AUD/JPY higher since last week as the cross is marching to a 100 psychological level now. Whole medium term up trend from 55.06 is still in progress, and should be targeting 100% projection of 55.06 to 88.05 from 74.55 at 107.54 next, which is close to historical high of 107.88 made in 2007. At this point, we're viewing the rise from 55.06 as a corrective move, so we'd be cautious on reversal around 107.54/88. Outlook will stay bullish as long as 92.96 support holds, and further rise is expected in near to medium term.

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In the eurozone, Italy's yield spread with Spanish bonds narrowed sharply after Fitch lowered Italy's sovereign debt rating to BBB+ last week. That's just one notch above Spain's BBB rating and three notches above "junk". Markets are seeing risks of Italy starting to overtake Spain on account of recent political uncertainties. That would mean that the upcoming Italian bond auctions will be important events. Meanwhile, the EUR/USD is staying in tight range at around 1.3 for the moment.

Elsewhere, UK RICS house price balance deteriorated again to -6 in February. Australia NAB business confidence dropped to 1 in February. UK data will be the major focus today. Industrial production is expected to drop -1.1% mom in January, while manufacturing production is expected to drop -1.1% mom. Trade deficit is expected to narrow to GBP -8.8b in January. Other data to be released include UK NIESR GDP estimate and German CPI, as well as US monthly budget statement.