24 July 2018
Rates & FX Market Update
BoJ Considering Shift in Policy Roiled JGB Markets
Highlights
¨ Global Markets: JGB yields jumped with the 10y JGB climbing +5.1bps d-o-d and the Japanese Yen rose against the USD (+0.13% d-o-d) after media reported that the BoJ is considering changes to its ultra-loose monetary policy. As the 10y yield rose close to 0.9%, the BoJ consequently conducted purchases which failed to bring the yield significantly lower (close at 0.086%). Such market reactions indicate that (i) the BoJ is likely to struggle to communicate that flexible monetary policy on its QQE is not a way of tightening, and (ii) tightening expectations for the BoJ (but also the ECB) are high and are likely to be one of the most important FX drivers in the medium term horizon especially since the Fed’s tightening cycle is already mature and well acknowledged.
¨ AxJ Markets: Over in Singapore, SGD held its ground against regional currencies after core CPI came in higher than expected at 1.7% y-o-y (consensus: 1.5%); headline print came in as expected at 0.6% y-o-y. Faster-than-expected gain in inflation raise the likelihood of MAS tightening its SGD NEER policy in the October meeting, although we remain watchful of external conditions and domestic retail sales, the latter appears sluggish in recent months; stay neutral SGD.
¨ CNY fell c.0.4% against the USD overnight, with the USDCNY pair soon testing the 6.80 handle, as PBoC continues to take its Yuan fixings lower while clearly retaining its dovish bias, not helped by a stronger dollar despite President Trump’s tirades against the EUR and CNY. Chinese authorities’ response to the latest depreciation episode have been lacklustre so far, with further CNY losses in line if no hawkish actions are taken to calm investors’ nerves; we are now mildly bearish towards the CNY.
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