Yen Quiet as BOJ Keeps Policy Unchanged, BOE Minutes on Tap

The Yen yielded a mute response after the Bank of Japan kept monetary policy unchanged. Minutes from May’s Bank of England meeting are on tap ahead.

Talking Points

Japanese Yen Little Changed as BOJ Keeps Monetary Policy Mix Unchanged
British Pound Vulnerable Before BOE Meeting Minutes, UK Retail Sales Data
Euro Unlikely to Find Volatility as EU Leaders Summit Proves Lackluster
US Dollar May Decline as Bernanke, FOMC Minutes Support QE Status Quo

The Japanese Yen was little changed after the Bank of Japan kept monetary policy unchanged at its monthly policy announcement, reiterating its intent to expand the money supply by ¥60-70 trillion per year. Bank officials struck an upbeat about the economy, citing improvements in business investment and consumer sentiment as well as stabilization in exports. Looking ahead, the BOJ expects economic growth and inflation to continue firming but added the outlook remains highly uncertain.

Minutes from May’s Bank of England rate decision are in focus in European trading hours. Investors will be keen to see the vote tally against an expansion of QE after yesterday’s soft inflation data primed investors for the possibility of added accommodation. Anything on the dovish side of a 6-3 poll against a £25 billion increase in asset purchases is likely to compound downside pressure the British Pound.Separately, UK Retail Sales are due to rise 1.8 year-on-year in April but a sharp 2.2 percent drop in an analogous reading from the BRC two weeks ago opens the door for a downside surprise. We continue to hold a GBPUSD short position.

An EU Leaders’ Summit in Brussels is expected to focus on energy policy in the context of the region’s lingering recession as well as tax evasion. The sit-down seems unlikely to produce any significant policy breakthrough on critical matters relating to the Eurozone debt crisis and so seems likely to pass with little response from the Euro.

The spotlight turns to Fed Chairman Ben Bernanke as he testifies before a joint Congressional economic committee. Later in the day, the US central bank will also release minutes from the April/May FOMC meeting. Markets will be keen to parse commentary for clues about a possible reduction in the size of monthly asset purchases, which would be supportive for the US Dollar if it were to materialize.

While the Fed is not in close proximity to the thresholds it set on unemployment and inflation expectations in December, concerns about the market structure implications of a buying $85 billion in paper each month have started to seep into official commentary. The adverse reputational risks of pulling back on stimulus without a shroud of discernibly improving economic conditions seem likely to keep the FOMC from switching gears for now however. This may disappoint the markets and weigh on the greenback.

Asia Session:

GMT

CCY

EVENT

ACT

EXP