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May 30, 2013
Flash: Gradual QE tapering more favourable - BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ comments that Boston Fed President Rosengren noted that a gradual tapering of QE would likely be more desirable than an abrupt end to purchases.
However, he adds that Rosengren also displayed concern that core inflation remains at the very low end of recent experience which may mean that policy “has not been sufficiently accommodative”. Further, he feels that slowing the pace of the Fed’s QE programme should prove supportive for the US dollar if the US economy also gathers upward momentum leading to higher yields with US dollar weakness heading into month end likely to then prove only corrective.
He continues to note that more risk-averse trading conditions have also been driven by further evidence that global growth remains weak. The release of Q1 GDP reports yesterday from both Brazil and Poland proved weaker than expected. Further, he sees that the yen’s corrective rebound has also been supported overnight by further evidence that the expected pick up in yen weakening capital outflows from Japan are not yet materializing. he writes, “The latest weekly securities transaction report from the MoF revealed that Japanese investors sold another sizeable net JPY1.22 trillion of foreign bonds in the week ending the 24th May following net sales totaling JPY1.04 trillion in the previous week. BoJ Governor Kuroda has also spoken overnight stating that undesirable yield volatility reduces the impact of monetary easing. Market participants have reportedly expressed a desire for the BoJ to purchase JGBs more often in smaller amounts. The BoJ is expected to release a JGB purchase schedule for June later today.”
However, he adds that Rosengren also displayed concern that core inflation remains at the very low end of recent experience which may mean that policy “has not been sufficiently accommodative”. Further, he feels that slowing the pace of the Fed’s QE programme should prove supportive for the US dollar if the US economy also gathers upward momentum leading to higher yields with US dollar weakness heading into month end likely to then prove only corrective.
He continues to note that more risk-averse trading conditions have also been driven by further evidence that global growth remains weak. The release of Q1 GDP reports yesterday from both Brazil and Poland proved weaker than expected. Further, he sees that the yen’s corrective rebound has also been supported overnight by further evidence that the expected pick up in yen weakening capital outflows from Japan are not yet materializing. he writes, “The latest weekly securities transaction report from the MoF revealed that Japanese investors sold another sizeable net JPY1.22 trillion of foreign bonds in the week ending the 24th May following net sales totaling JPY1.04 trillion in the previous week. BoJ Governor Kuroda has also spoken overnight stating that undesirable yield volatility reduces the impact of monetary easing. Market participants have reportedly expressed a desire for the BoJ to purchase JGBs more often in smaller amounts. The BoJ is expected to release a JGB purchase schedule for June later today.”