Being Haruhiko Kuroda

April 28, 2016

Someone, somewhere must be thinking of a film titled “Being Haruhiko Kuroda”. The crux of it will be a central bank governor who brings in easing measures and sees the currency rise (within 3 days to be exact). He also sees the currency rise when he does nothing. The yen is up over 3% against the US dollar in the wake of the BoJ’s non-decision on policy. This is a substantial move, firstly in light of the split in the market on whether the BoJ was going to introduce new measures. Secondly, just on the basis that even if new policies were introduced, their effectiveness both on the economy and also the yen would have been highly questionable. So the story in Japan remains pretty much unchanged from the back-story of the past two decades; deflation and policy ineffectiveness. Overnight, the latest data on inflation showed the headline rate falling below the zero level, with core inflation also weaker than expected at -0.3% YoY. Talking of policy, the Fed kept the forward guidance unchanged in its policy statement yesterday, with only minor changes to its current description of the economy. The dollar was pretty much unchanged as a result. Elsewhere, the kiwi is up nearly 2% after the RBNZ kept policy on hold after their policy decision. That said, the statement indicated that “further policy easing may be required” which is not a surprise given that inflation continues to run below target.

For today, there is nothing on the data agenda likely to upset markets. Equities remain focused on the earnings season in the US and although there have been some headline disappointments, overall results have been beating expectations. The weaker dollar has played a part in this, reversing the strength of the past year. Sterling remains one to watch, holding below the 1.4668 on cable which is the key level to watch for a more significant break higher. Brexit concerns remain, but the market currently appears more relaxed.

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