Reuters Insider - Market Pulse: Yen slips after Yellen sparks risk rally
27/04/2014 23:09
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Source: Thomson Reuters
Description: The yen slips to a two-month low against the
dollar and a four-year trough versus sterling
after Janet Yellen defends Fed stimulus. Reuters
FX analyst Neal Kimberley waxes lyrical about
dollar/yen.
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Transcript (May be auto-generated)
So the Yellen-inspired risk-on theme prevails, leading European shares steadying
near five-year highs on Friday. French media group Vivendi topping the
FTSEurofirst 300 leader board after a rise in Q3 sales and earnings beat
forecasts. Expectations of further central bank stimulus keeping the equity
rally on track then with Pan-European indexes up around 15% so far this year.
Overall though, third quarter results in Europe have been mixed. 51% of the
STOXX 600 Index have beaten or met forecasts but that leave 49% have missed.
But with their end of year positioning in late November, many traders likely to
sell off equities to book profits on the year's gains rather than chasing extra
small gains. In FX, dovish comments from Janet Yellen during her Senate
confirmation hearing pushing the Yen to a two-month low against the Dollar and a
four-year trough against Sterling. UBS saying a break above JPY100.61 to the
Dollar could open up 101.53. Here's our favorite Yen bear, Reuters Analyst Neal
Kimberley.
Good to have you back. That's twice in a week. Yes. Popular demand. I feel sorry
for the viewers. Right. It's a one-way bet right now. Where's it headed? Well I
think the danger is a bit of exuberance creeping in here. But I mean I don't
think anybody's got the trade per se. I don't know anybody who's that long of
Dollar/Yen because it's been a grind that the market's been focused all week on
a massive amount of expiries at 100 and a lot more going off today. But you can
sense from Japan - I feel the mood music from Japan is saying to me look, we can
probably get this up to 103, 104. You think that's what they politically can get
away with? I think they'd like to try and get away with it, yes, and I think
they feel this is the moment. And I say that for a number of reasons. One thing
Mr. Aso, standing up in Parliament yesterday talking about intervention
reserves, I mean if you look away at his logic it doesn't make a lot of sense
but essentially the market took it as bearish here. Then you got Mr. Amamiya
saying that the foreign exchange rate is a transmission mechanism for monetary
policy, not an objective, a transmission mechanism. But there again, we know
what monetary policy is in Japan, it's very, very accommodative. I think Mr.
Kuroda, who seems to me almost evangelical in his zeal to ease, will do more in
the first quarter because that first arrow of Mr. Abe has so far been the most
effective and that third arrow, structural reform, at the moment looks like a
broken arrow to me. So I think we're going to see more from the Bank of Japan.
You say the markets saw Aso yesterday as a self-signature. Do you think that was
wrong? I don't think when Mr. Aso stands up, necessarily he - what comes out of
his mouth doesn't necessarily translate well into English sometimes, should we
put it that way. For example, to be saying building up a bulk of reserves for
intervention proceeds, essentially one needs as central bank a bigger space of
reserves, if you will, if you are considering selling those reserves to protect
your currency from further weakening. That's not what the Japanese are looking
at. They want a weaker Yen. But the point is, as soon as you mention Bank of
Japan reserves, in the context of perhaps increasing them, you're essentially
pushing Dollar/Yen to the right and you're making the mood music. And don't
forget on January 1, anybody over the age of 20 in Japan will be allowed to
invest JPY1 million per year in investment savings wrapper free of all capital
gains tax. Right. I think the mood music is being set up by the Japanese
policymakers to push that money offshore. And I think Japanese corporates who
seemed a little bit low to invest in Japan itself are also being directed that
way. Go west, dear boy, away from Japan, invest offshore, make it Yen negative.
And I think this is the way they see going forward. I think also the market has
been squeezed out of the long Dollar/Yen trade because it's been so stable over
the past few months. In recent weeks, as people I speak to, the hot trade has
been to go along of CNH, short of Japanese Yen and take the carry, works
beautifully. Chinese reforms as being outlined earlier on Reuters would suggest
that's got more legs on its own. I can see lots of reasons for saving the Yen.
And you know what, Amamiya-san is interesting because he's laying the mood music
for next year and it's like that Abe song, you know. The long Dollar/Yen trade
is like that Abe song. Amamiya, here I go again, my, my, how can I resist you?
I'm going to leave it there on that note. Neal, thanks very much indeed. Only
Neal Kimberley can you get an Abe song into our FX discussion. Finally, data
today showing Eurozone inflation at 0.7%, its lowest level in almost four years.
On this day in 1923 though, as hyperinflation raged in Germany, it took 4.2
trillion Marks to buy $1. Workers were paid twice a day and rushed out at
lunchtime shoving wheelbarrows of money to buy anything they could find before
prices rose again, a timely reminder why to this day Germany finds it hard not
to fear inflation. That is today's Market Pulse. Find out why wage cuts in Spain
stink literally in our Breakingviews show available now on-demand. I'm Axel
Threlfall, this is Reuters