It seems that recent JPY strength has been driven by global risk appetite, although I admit that Abe's statement speaking out against "currency manipulation" had been the trigger to briefly push USDJPY below 110.Someinvestors hoped Japan would intervene to stop JPY from rallying further. This morning the risk outlook has brightened somewhat. Oil has rebounded following comments by Kuwait suggesting that the next OPEC meeting on April 17 could reach an agreement to cut production Today’s FOMC minutes may create some more hawkish headlines compared to last Tuesday’s Yellen speech. Some doves like Rosengren and Evans have become moderate hawks, adding to market confusion. However, ahead of this Friday’s scheduled appearance of Yellen together with Bernanke, Greenspan and Volcker, markets will likely put less attention on Fed minutes. What counts is the opinion of Yellen and maybe Dudley, and here dovishness prevails.
JPY rallied despite Japanese investors buying aggressively into foreign bond markets, trying to escape the flat and mostly negatively yielding Japanese sovereign curve. It could be argued that the BoJ's current QE stance is hitting limitations, with bid-offer spreads rising as the amount of free floating JGBs declines. Hence, the BoJ should consider alternative ways of easing such as buying private assets. It is clear that without the support of demand-boosting portfolio effects, ‘Abenomics’ runs an increasing risk of derailing and Friday's release of the Tankan report suggesting companies expecting lower price increases in the future has underlined the importance of import prices, which have remained under continued downside pressure due to the rising JPY. Looking at the price action, JPY and CHF are the outliers in strength, GBP, MXN and NZD are outliers in weakness. The market seems to have taken yesterday’s correction seriously; things have been pretty close to important levels in both FX and equities. Emerging Markets in Asia, Latam and EMEA all have lost some of the recent gains and remain sideways.