The Land of the Rising Sun takes the spotlight

What a difference a couple of weeks make. Only a couple of weeks ago, it would seem like the sky was falling in Europe as Cyprus was on the brink of bringing the Eurozone to its knees. That story did shave a couple cents off the Euro bringing it down all the way to 1.2750 last week Thursday. A week later though and the Euro has added 3 ½ cents back coming all the way to over 1.31 today. That’s roughly where it’s sitting right now. If you read the news, you can hardly find an article about Cyprus nowadays it seems. As its memory has faded this week, the Euro has charged forward. It seems like that story was never so much about a small periphery country in Europe as is was about the European Central Bank’s response to the crisis there and whether it would be a blueprint for future ECB bank rescues of other periphery countries with a banking sector gone astray. A Dutch finance minister made comments that could have been construed to indicate it was a template for future periphery crisis and he spent the next week trying to walk those back after that foot-in-mouth gaffe. Anyway, the situation in Europe seems to have calmed as the equity indexes have picked up steam along with the Euro and Italy’s 3-year debt costs fell to the lowest level since January. This newfound optimism doesn’t do much to console the rich Russian oligarchs who took a 60% haircut (well above the 30-40% first tossed around) on the money they had in Cyprus banks though (ouch).

The country that has everyone’s attention at the moment has now moved on to the East. Japanese Prime Minister Abe installed Haruhiko Kuroda in March as the new the new Governor of the Bank of Japan after he took power and promised that he would advocate more aggressive fiscal and monetary. Last Thursday, April 4th, the newly minted Bank of Japan Governor Kuroda appeared to have got the message with an all-in bet that surprised the markets with it boldness. The Yen shot up over 3% that day after he made 2% inflation target an official policy (remember Japan has been plagued more with deflation in recent memory than inflation) and aims to double the monetary base in the country in the next 2 years to defeat deflation. That morning last Thursday it was sitting around 92.50 and has been depreciating steadily since. It is sitting within a breadth of 100 today (and 8% move in a week) and looks like only a matter of time before it crosses that threshold. Some traders are saying it could go all the way to 115 before we see a pause. I hope you Japanese exporters reading this commentary have your seatbelts fastened.

In other markets, yesterday China announced imports have surged 14.1% on the year, beating market expectations. That news further helped the Aussie as it hit a 2 ½ month high topping out around 1.0580 yesterday. It has come off today some though as the Australian unemployment report showed the rate at a 3-year high. This fanned expectations that the Reserve Bank of Oz will lower borrowing costs to support growth. The overall rate rose to 5.6% last month, the highest since 2009, from 5.4% in February.

I also received the monthly consensus currency forecast last Friday:

Not sure what you can take away from that forecast. It was put out less than a week ago and already the prevailing spot rates of the Aussie, Euro, Pound, Franc, and Yen aren’t anywhere within the year range. The economists they poll may want to resort to Tarot cards or darts. At least they appeared to have the general direction right in the case of the Yen, but as I said, most market watchers didn’t expect Kuroda to put all his chips on the table in one bold move like he did.

On a lighter note, baseball season has started again and the Bay Area teams are starting out nicely. Go Giants!

For additional information please call (408) 556-8377.

Regards,

Brian Simonson
Senior Vice President - FX Trading

Bridge Bank, N.A.
55 Almaden Boulevard
San Jose, CA 95113
T. 408.556.8377
F. 408.275.0362
Email

Disclosure

Bridge Bank cannot accept liability for any inaccuracies that occur. No statement is to be considered as a recommendation or solicitation to buy or sell securities or other instruments or to provide investment, tax, or legal advice. Readers should be aware that the information provided is not intended to replace professional advice in relation to any topic discussed.

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