Yen Recovered Overnight Losses After BoJ On Hold: April 10, 2012

The Japanese yen recovered some lost ground today after BoJ left rates unchanged at 0-0.1% as widely expected. The bank also refrained from adding to its stimulus of JPY 30T asset purchase fund and JPY 35T credit lending program. Markets are speculating that mounting political pressure would finally prompt BoJ to act again later in late April by expanding the JPY 65T programs by another JPY 5T, and commit to buy more government bonds.

It could also extend the maturity of bonds from two-years to five-years. Japan's prime ministers Noda said there will be ministerial meetings on overcoming deflation, with Economic and Fiscal Policy Minister Furukawa leading the discussions. BoJ Governor Shirakawa will also attend as an observer.

Recent rebound in the Japanese yen was somewhat stronger than expected but major yen crosses are still holding above near-term support levels. The rise in yen was more likely driven by profit-taking with help from steep decline in US treasury yield rather than a change in trend. The pull back in yen crosses look corrective so far. And after all, we'd expecting more easing from BoJ ahead to meet its explicit 1% inflation target and that should continue to exert medium-term selling, pressing in the Japanese yen. We're looking for strong support in 80.58 in USD/JPY, 105.64 in EUR/JPY and 126.54 in GBP/JPY to continue downside and bring rise resumption.

China unexpectedly posted a trade surplus of $5.35b in March versus expectation of $3.15b deficit. Imports rose 5.3% yoy while export rose 8.9% yoy. The overall trade balance for Q1 2012 was a $1.1b surplus, which is better than the $0.71b deficit in Q1 2011. And that could give an upside surprise to Q1 GDP data later this week. Note that the stronger-than-expected CPI of 3.6% yoy in March prompted some talks that China will be cautious in adding stimulus to markets but the outlook will very much depends on the GDP figure too.

Elsewhere, UK RICS house price balance improved more than expected to -10% in March. Australia NAB business confidence improved to 3 in March. Swiss unemployment rate was unchanged at 3.1% in March. German trade balance, eurozone Sentix investor confidence and US wholesale inventories will be released later today.