Yen watch! 

Yen Bounce or Unwinding of Carry Trade?

Is this week's bounce in the Japanese yen a sign that the carry trade is starting to unwind? Probably not.

The yen has been strong in recent days. However, the move has been largely driven by investors exiting positions in risky assets, rather than changing fundamentals. Those who funded their investments using yen denominated loans are repaying them, pushing the currency higher. While it is possible that this activity could lead to a spiral effect if risk aversion becomes rampant, the odds are limited.

Bottom line: Without economic support for a stronger currency (which is currently not the case— see below), the yen will likely fall back to its lows once near term market turmoil dies down.  

Japanese Economy Continues To Disappoint

Japanese CPI measures and wage growth provide little support for further monetary tightening.

Today's releases show that deflation persists in the Japanese economy. The national core CPI index (excluding food and energy) remained negative at -0.2% year on year in January. Meanwhile, the February Tokyo measure slipped back to -0.1% after recently breaking into positive territory. Today's job report was equally disappointing with the job-to-applicant ratio dipping and annual wage growth plunging in January to -1.4%. The latter surprised the market which anticipated a positive number. With employment soft and wages still contracting, it is unlikely that the consumer sluggishness will end anytime soon. Today's releases come on the back of weak industrial production and retail trade numbers earlier this week. Bottom line: There is little support for any further tightening.  

And finally…………… 

FROM BRITISH NEWSPAPERS (1)
 

Commenting on a complaint from a Mr. Arthur Purdey about a particularly large gas bill, a spokesman for North West Gas said,  

"We agree it was rather high for the time of year. It is possible Mr. Purdey has been charged for the gas used up during the explosion that destroyed his house."

(The Daily Telegraph) 

HAVE A GREAT WEEKEND

Prometheus from sources: ADM, Barclays Capital, Cazenove, Charles Stanley, HSBC, ING, SocGen, UBS.