USD/JPY initially fell from 113.80 to 113.40

Market Movers

• Today’s calendar contains a series of US data releases with February’s retail sales report asthe most important release. The retail sales control group is expected to increase 0.2% m/min February following a solid 0.6% increase in January, suggesting that US householdscontinue to spend what they have saved on lower gasoline prices. Moreover, another solidretail sales print for February means that private consumption has been little affected by theturmoil on financial markets so far this year.

• Other US data releases are expected to show moderate improvements. The Empire Statemanufacturing index is expected to increase to -10 in March from -16.64 in February, whilethe NABH housing market index is forecasted to tick up to 59 in March from 58 in theprevious month.

• Note that due to daylight savings time (DST), US data will be released one hour earlier thanusual in CET time.

• In Sweden, we expect inflation to come in a tad above the Riksbank’s latest forecast, see Scandi Markets.

Selected Market News

As widely expected, the Bank of Japan (BoJ) this morning kept its asset purchase programme unchanged at JPY80trn per month and kept its key policy rate at -0.1% with a 7-2 vote. The two dissenting members, Mr. T. Sato and Mr. T Kiuchi, both objected against negative interest rates. In its statement, the BoJ noted that exports and production have been sluggish due to weak demand in primarily emerging markets. We see a high probability that the Japanese economy will be hit by a technical recession in Q4-Q1 with yet another negative GDP growth in Q1. Inflation printed at 0.0% y/y in January and is likely to remain subdued due to the combination of the falling oil price and appreciation of the yen. In our view, it is only a matter of time before the BoJ will ease further - we forecast the BoJ to ease in July when it publishes its quarterly Outlook Report with updated growth and inflation forecasts. Here, we expect the BoJ to cut its key policy rate by 20bp to -0.3% while keeping its QE programme unchanged at JPY80trn per month.

USD/JPY initially fell from 113.80 to 113.40 after the BoJ’s monetary policy announcement while the Nikkei equity index dropped 0.7%. Both USD/JPY and Nikkei have since dropped further as weak risk appetite has dragged all Asian bourses in negative this morning.

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