USD/JPY: Bank Of Japan Will Keep Rates On Hold Tomorrow

Do you want to know which are the Current Trading Positions of our contributors? Get a glance here.

USD/JPY: Bank Of Japan Will Keep Rates On Hold Tomorrow

• The Bank of Japan is likely hold off cutting interest rates tomorrow, as it scrambles to soothe market jitters caused by January's surprise decision to adopt negative interest rates.

• Markets are rife with speculation the BOJ will expand monetary stimulus in coming months to reflate a stagnant economy, after January's move failed to boost stock prices or arrest an unwelcome rise in the JPY. But many central bank policymakers are reluctant to ease again soon. The market will sift through the BOJ's policy statement tomorrow for any hints that it may be losing confidence in negative rates after the ECB suggested it will have to be cautious on cutting rates ever deeper into negative territory. 

• Even if it were to act, the BOJ would prefer to top up asset purchases rather than cut rates given the bond market instability and public criticism January's negative rate decision received. Cutting rates again may also draw criticism from banks, many of whom are angry for having their already thin margins squeezed and being caught offguard by the BOJ's sudden decision. 

• BOJ Governor Haruhiko Kuroda said last week: “Now is the time to carefully scrutinise how the effect of the negative rate policy will spread to the economy.” 

• Koichi Hamada, a key economic adviser to Prime Minister Shinzo Abe, said today that the Bank of Japan is unlikely to ease policy further for the moment as it gauges the impact of its surprise adoption of a negative interest rate. 

• In our opinion the long-term outlook on the USD/JPY is slightly bearish. The BOJ's surprise decision to take rates below zero on January 29 did little to weaken the yen, which eventually soared to a 16-month high against the USD last month. However, we stay sideways now as in our opinion no position is justified from risk/reward perspective ahead of Fed meeting on Wednesday.

USD/CAD: Bearish Trend Kept Intact Despite Weaker Canadian Jobs Report

• The CAD strengthened against USD on Friday, hitting a four-month high as oil prices rose and broader risk appetite improved, allowing the currency to brush off data showing a second straight month of Canadian job losses.

• The Canadian economy unexpectedly shed jobs last month, pushing the unemployment rate to a nearly three-year high due mainly to a loss of full-time positions. The labor market lost 2.3k positions in February, falling short of market expectations for a gain of 9k jobs. That put the unemployment rate at 7.3%, its highest since March 2013. The market had expected it to hold at 7.2%.

• The loss of 51.8k full-time positions more than offset a gain of 49.5k part-time jobs. The participation rate held steady at 65.9%.The healthcare and social assistance field saw the biggest losses with a decline of 19.6k jobs, followed by the educational services sector. The natural resources sector, which has suffered because of cheaper oil prices, continued to weaken with a loss 8.9k jobs.

• In other domestic data, the ratio of household credit market debt to income rose to a record 165.4% in the final quarter of 2015, a third straight increase. It reinforced fears that borrowers and the broader economy will suffer a painful reckoning when interest rates eventually rise. 

• Oil prices, which are highly correlated with the CAD, rose on Friday after an optimistic report from the International Energy Agency said crude may have reached its bottom. But today Brent crude futures fell back below USD 40 a barrel, after Iran dashed hopes that there would be a coordinated production freeze any time soon. Iran said they would only join the output freeze group once they reached production of 4 million barrels a day. Iran's oil exports are due to reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the previous month, Iran's oil minister Bijan Zanganeh said on Sunday. Zanganeh is to meet his Russian counterpart Alexander Novak in Tehran today. Saudi Arabia appeared to have stuck to a preliminary deal with some other producers to freeze output as its crude production held steady in February at 10.22 million barrels per day. 

• There is momentum with the Canadian dollar right now and in our opinion the CAD will remain strong in the coming weeks. The Bank of Canada appeared to shrug off a recent rebound in the currency on Wednesday, saying the rise in the exchange rate and oil prices are in line with what was assumed in January. 

• We went short on the USD/CAD at 1.3380 and set the target at 1.2900. The USD/CAD is capped with the 7-day exponential moving average, which is below the 14-day ema and this keeps the bearish trend intact. Our short-term target is slightly above the bottom from October 2015 (1.2831).