Yen Jumped On Risk Aversion, NZD Pressured After RBNZ Conference

Yen soared across the board on risk aversion as global equities are weighed down by speculation over the Fed's tapering of stimulus. Investors are getting more cautious, ahead of the FOMC meeting next week. Some analysts noted that volatility will remain before that. The DOW dropped as much as -126.79 pts, or down -0.84% to close below the 15000 handle at 14995.23. The 10 Year treasury yield, on the other hand, rose to close at 2.23%. Asian equities followed, and with the Nikkei diving nearly -600 pts at the time of writing, or -4.5%. The USD/JPY dropped through 94.98 support to resume recent decline from 103.73 while the EUR/JPY and GBP/JPY are back pressing 126.15 support and 148.18 support respectively. The Aussie is the weakest currency this week so far with the AUD/JPY down over -3%, while the CAD/JPY also dropped over -3%. However, the NZD/JPY is catching up after the RBNZ rate decision.

Another factor that boosted the Japanese was flow data. According to MoF data, the Japanese sold a net JPY 386.9b of overseas debt, and a net JPY 221.8b in foreign equities in the week ending June 7. Analysts noted that markets would like to see net outflow of capital from Japan. But instead, data are showing the opposite. The MoF noted last week that moves in the USD/JPY were "quite rapid", and that director general, Tatsuo Yamasaki will closely monitor the FX markets.

RBNZ left rates unchanged at 2.50% as widely expected. Governor Wheeler noted in the statement that the NZD "remains overvalued", and the central bank may "exercise intervention" if opportunity arises. The statement noted that the high NZD "continues to be a headwind for the tradeable sector, restricting export earnings and encouraging demand for imports." Regarding the domestic economy, the RBNZ noted that it's picking up, but "remains uneven across sectors". The GDP is expected to "accelerate" to 3.5% by H2 of 2014, and inflation is projected to rise back to the midpoint of 1-3% target. The RBNZ is expected to keep the OCR unchanged through the end of the year.

The World Bank lowered its global economic outlook. The GDP is expected to grow 2.2% this year, compared with January's estimate of 2.4% and 2012's expansion of 2.3%. Growth for emerging markets and the eurozone was down, while that for the U.S. and Japan should improve, driven by aggressive fiscal and monetary stimulus. The U.S. GDP would probably expand 2% this year, up from 1.9% projected in January. Developing economies would grow together by 5.1%, down from January's 5.5%. Of which, Chinese GDP would expand 7.7% (down from January's 8.4%), India would grow by 5.7% (January: .6.1%) and Brazil by 2.9% (January 3.4%). The lender noted that "hard data so far this year point to a global economy that is slowly getting back on its feet" but "the recovery remains hesitant and uneven".

On the data front, Australia employment unexpectedly grow 1.1k in May while unemployment rate was unchanged at 5.5%. The data was better than expected, but provided little support to the Aussie. Swiss PPI will be released in the European session with the ECB monthly bulletin. Some important economic data will be released by U.S. today. Retail sales are expected to rise 0.4% in May, with ex-auto sales rising 0.3%. Initial jobless claims are expected to be relatively unchanged at 345k. Import price index and business inventories will also be released.