[AndrewWoo]

USD-JPY failed to maintain its break below the 200-day moving average (currently 98.87). The JPY’s rebound appears to be offering opportunities for Japanese investors to buy foreign currency assets on weakness as their book closing constraints are over. During April 5-11 Japanese investors net purchased Y818.3bn in foreign notes/bonds (net sales of Y2.11tn in the previous week). Nonresidents’ net purchases of Japanese equities picked up to Y114.5bn from Y44.7bn in the previous week. Unless we see reasons to expect greater capital flows into Japanese asset markets than into other markets, we are reluctant to shift to a bullish view on the JPY. Improving risk appetite should foster Japanese investors’ investment in higher-yielding foreign assets as well as JPY-funded carry trades. Therefore, we maintain our bearish view on the JPY. The latest Chinese economic data should keep alive hopes for a China-led recovery in Asia and help underpin risk appetite. This should be supportive for the AUD over time.

However, we maintain our bearish view on the AUD in the near term, and market participants await more hints of the RBA’s stance in the April 21 Board meeting minutes. AUD-NZD broke above the 55-day moving average (currently 1.2516) ahead of New Zealand’s 1Q CPI report on Friday. The Bloomberg consensus forecast is +0.3% qoq/+3.0% yoy following -0.5% qoq/+3.4% yoy in 4Q 2008.