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Daily FX Market Commentary

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Bank of Japan kept leading rates on hold at 0.1%

Fri, Nov 20 2009, 07:55 GMT
by Danske Research Team

Danske Bank A/S

Key news

• Uncertainty regarding the pricing in the US equity market drives US equity prices and bond yields lower. Yield on US T-bills was negative.
• The dollar has remained stable overnight against euro and yen. SEK and NOK were also stable against EUR after losing ground yesterday due to the weakness in the equity markets.
• Bank of Japan kept leading rates on hold at 0.1% after the Japanese government urged the BoJ to be committed to battle deflation. BoJ more positive on the Japanese economy.

Markets Overnight

The US equity market could not continue its rally, and yesterday saw a solid decline in the S&P500 and the Dow despite a stronger-than-expected Philly Fed survey and jobless claims coming in as expected. Furthermore, a more positive report from OECD, in which it made an upward revision of its growth forecast for 2010. However, there is growing uncertainty about the valuation of stocks; one of the respected equity analysts thinks that especially US bank stocks are highly overvalued, and that the possible ending of the Fed buying US mortgages could have a severe impact on bank earnings. Furthermore, PIMCO’s Bill Gross warned of a rise in global asset bubbles in the economies and markets.

US bond yields declined as well and the yield on T-bills became negative, which was last seen at the height of the financial crisis. US bond yields declined some 2-5bp across the US Treasury curve.

The negative sentiment continues in the Asian market with most major indices down. Nikkei is down 0.9% this morning, and Hang Seng has declined 0.5%. Bank of Japan maintained leading rates at 0.1% after the government urged the BoJ to keep rates low in order to battle deflation. There might be increasing differences between the BoJ and the government on the economic outlook, since BoJ was more positive on the Japanese economy in its assessment published this morning.

In the FX markets the dollar has remained range bound against both yen and euro in Asian trade at the 149-level and just below the 89-level, respectively. SEK and NOK weakened yesterday against EUR as equities declined, but have remained stable at the 10.29-level and 8.41-8.42-level this morning.

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Published on  Fri, Nov 20 2009, 07:55 GMT