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Fundamental Morning Wrap: JPY & USD - Key levels and record highs

FXstreet.com (Barcelona) - On a slow morning for economic data, price action and institutional research, there has been a general focus on both JPY and USD. At a time when Yen is making multi year lows, and sits just below the psychological $100.00 level, in the US stocks and bonds are making record highs. The two nations have unprecedented easing programmes in place, and during the market lull many analysts are taking the opportunity to take a thorough look at the surrounding situations.


Richard Yetsenga and Khoon Goh of ANZ Research believe that the BoJ´s easing is a zero sum game and will not be as powerful as the Yen carry trade of years gone by. They feel that unless Japanese easing boosts the global economy, the liquidity benefits of Japan´s easing will be offset for some currencies through a loss of equity investment and a deterioration in export competitiveness. Michael Hartnett of BAML asks whether Abe could be considered to be the anti-Thatcher. He notes that just as Thatcher and reagan and Volcker waged a successful war against inflation in the early 1980s, Abe and Kuroda (and Bernanke) are waging a war against deflation today. He writes, “Abe wants the nikkei to soar and JGB yields to collapse.” He recommends owning Japanese financials. Lee Hardman of BTMU notes that USD/JPY continues to hover below the psychological 100.00 level and comments that the BoJ easing policy is combining with Eurozone crisis to have a negative impact on the Yen. He adds that the Yen has moved into undervalued territory since the BoJ easing, and he asks the question, “how much weaker could it become?” Danske Bank analysts believe that we may see some profit taking in front of the magic 100.00 level.


Richard Yetsenga and Khoon Goh of ANZ Research believe that USD is likely to trade more robustly against currencies where competitive pressure from Japan or policymaker resistance are likely to be greatest, or where the risk of a reallocation of global equity capital toward Japan is prevalent. Michael Hartnett of BAML takes a look at the S&P today and notes that US Stock and Bond prices are at record highs, but yet the participation rate of the US labour force has fallen to its lowest level since 1978. He writes, “Wall Street is booming; Main Street is not. Inflation, a bond crash, a new housing bubble are all plausible "bad" conclusions to the stimulus. Policy mistakes, driven by the divergent returns to workers and to capitalists, is another danger.” Danske Bank analysts note that Obama presented his budget last night, aiming to kick start deficit reduction talks ahead of the July deadline.

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