Yen Broadly Lower As Risk Appetite Returns On Easing Spain Worries: April 18, 2012

Yen weakens broadly while dollar remains soft as yesterday's risk rallies carried on to today's Asian session. Asia equities are generally higher following the 194 pts rise in the Dow overnight. Worries on Spain were eased after successful bill auction with strong demand and 10-year yield dipped back below 6% again.

Sentiments are positive for the moment even though Spain will face a bigger test of sales of 2- and 10-year bonds tomorrow. Note that the strong rally in US equities invalidate the bearish view that they're topped earlier in the month and indeed, the Dow would now likely make at least another high above 13,297 in near term. And the development would likely give some pressure to the dollar and yen.

Talking about the Japanese yen, BoJ deputy governor Kiyohiko Nishimura said that risks remain eurozone debt crisis "remain and they remain large." He reiterated that BoJ is "committed to implementing additional easing measures, if deemed necessary." His comments are regarded by analysts as strong signal to affirm the view that BoJ will expand the JPY 65 T bond buying and loan program on April 27 to meet the 1% inflation target. Meanwhile, Nikkei business daily reported that BoJ would raise the core CPI forecast to 0.1-0.5% for the current fiscal year, and between 0.5-1.0% for next fiscal year. The revision would be based on higher energy prices and post-disaster reconstruction demand.

IMF Chief Lagarde is targeting to raise additional $400b for its crisis fund this week. So far,the eurozone has committed $200b, Japan pledged $60b yesterday. Sweden, Norway and Denmark agreed additional $26b, making to total to $286b so far. Austria expressed its willingness to contribute but didn't indicate the size of additional funds.

However, US has bluntly rejected the request as Treasury Department senior official Lael Brainard reiterated that "the US has been very clear that we do not intend to seek additional resources for the IMF" and "we believe that the IMF has very adequate core resources that are available to address the challenges that we face."

Yesterday, the IMF raised global growth forecast to 3.5% in 2012 and 4.1% in 2013, up from prior projection of 3.3% in 2012 and 4.0% in 2013. US growth projection was revised up from 1.8% to 2.1% in 2012 and from 2.2% to 2.4% in 2013. Growth in advanced economy, including US, Japan, eurozone, UK and Canada, is projected to be at 1.4% in 2012 and 2.0% in 2013, up from prior projection of 1.2% and 1.9% respectively.

Emerging economies are expected to grow 5.7% in 2012 and 6% in 2013, up from prior projection of 4.4% and 5.9% respectively. However, note that outlook in the eurozone was not that good. The eurozone economy is expected to contract -0.3% in 2012 before posting 0.9% growth in 2013, slightly better than prior expectation of -0.5% and 0.8%. Recession in Spain is expected to be deeper than expected at -1.8% in 2012. Overall, IMF noted that "the most immediate concern is still that further escalation of the euro area crisis will trigger a much more generalized flight from risk."

Looking ahead, BoE minutes will be the main focus in European session today. UK job data and Swiss ZEW will also be released. From Canada, BoC will release the monetary policy report. Note that Canadian dollar jumped sharply following the hawkish statement from BoC yesterday. Additional volatility could be triggered by today's MPR.