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Fundamental Afternoon Wrap: JPY tops focus this afternoon

FXstreet.com (Barcelona) - This afternoons institutional research has a narrower and more retrospective focus, most probably due to the quiet calendar and lack of upcoming "scheduled" risk events. JPY is is main focus, but an eye is being kept on the simmering Portuguese situation too.


The BAML Global Economics Team note that the BoJ broke a pattern of reactive policymaking, adding to the list of unprecedented monetary policy moves seen across the world. They feel that the benefits of global policy easing outweigh the costs at this stage, and they expect further follow-through from the Fed and the BoJ well into 2014. BBH analysts note that despite other Asia stocks declining, Japanese stocks have continued to rally as the yen has weakened. Looking to the BoJ, they note the bank's decision last week to create bank reserves at an unprecedented rate. They write. “It seeks to do in two years what took the Federal Reserve five years to achieve. The scale of its monthly operations will be roughly twice the Fed's. Under Shirakawa, the BOJ's balance sheet was roughly 21% of GDP. The current plan is to bring to it about 40% by the end of 2014.” They comment that some observers are suggesting that the BoJ action is a new strike in the currency wars


The BAML Global Economics Team believe that the ECB is sending mixed messages. They write, “The ECB's Mario Draghi signalled the ECB could change its rate stance over the next month(s), and is mulling over credit support, but within its mandate, which seems to exclude asset purchases.” BBH analysts note that Portuguese stocks and bonds are underperforming, where losses are being led by financials. Sebastien Galy of Societe Generale notes that the wave of investment from Japanese investors seems largely gone by if price action is any guide. He writes, “What may be continuing is JPY replacing EUR as a funding currency creating a short covering that boosts the EUR.”


The BAML Global Economics Team believe that politicians, not technocrats are deserving for the blame for the US´s economic woes. They write, “Many analysts argue that the recession of 2008-9 distorted seasonal adjustment factors, creating "hot" winters and "cool" summers. However, we believe this "echo effect" is small and fading. If the economy slows this spring-as we expect-blame politicians, not technocrats.”

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