JPY: Resilience of Oil Price Reinforces Improving Risk Sentiment - MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the yen has weakened
modestly in the Asian trading session while commodity related and
emerging market currencies continue to outperform.
Key Quotes
“The
ongoing improvement in global investor risk sentiment was reinforced
overnight by the resilience of the price of crude oil which declined
only modestly after oil producers failed to reach an agreement to freeze
output. The initial sharp decline in the price of crude oil proved
short-lived which has reinforced expectations that the price of crude
oil has bottomed. However, market participants will now be watching
nervously to see if Saudi Arabia will increase production which would
increase downside risks tin the near-term.
Saudi Deputy Crown
Prince Mohammed bin Salman threatened only last week that production
could be increased immediately to 11.5 million barrels/day if there was
demand and without an agreement to freeze output. The ongoing
improvement in global investor risk has resulted in the Dow Jones
Industrial Average closing above the 18,000 level for the first time
since July of last year.
The rebound in commodity related
currencies is continuing to derive support as well from building
expectations that policy stimulus in China is helping to provide more
support for economic growth in the near-term as evident by stronger than
expected Chinese economic data releases so far from March. According to
Bloomberg, Citi’s economic surprise index from China has risen to its
highest level in a year.
The yen has been undermined as well by
dovish comments from BoJ Governor Kuroda in an interview with the Wall
street Journal. Governor Kuroda expressed concern that “if excessive yen
appreciation continues, that could affect not just actual inflation,
but even the trend in inflation through its impact on business
confidence, business activity, and even through inflation expectations”.
The comments signal clearly that the recent strengthening of
the yen have increased the likelihood that the BoJ will respond with
further monetary easing at the end of this month. As Governor Kuroda has
stated already, the G20 agreement won’t limit the room for further
monetary policy easing if justified by domestic conditions. In contrast,
Japan’s ability to intervene directly to dampen yen strength is far
more constrained.”