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Bank of Japan

The Bank of Japan is expected to raise its inflation forecast to near 2% while maintaining its easy policy stance, according to a report.

According to Reuters, citing sources familiar with the BOJ’s thinking

According to the report, the BOJ will raise its inflation forecast for the current fiscal year to near 2% later this month at its policy meeting, owing to a surge in global commodity prices, which has resulted in higher energy and food inflation.

However, the Japanese central bank will continue to emphasise the importance of maintaining ultra-loose monetary policy in order to aid the economy’s recovery from the pandemic.

According to sources, the BOJ will likely raise its core consumer inflation forecast to more than 1.5 percent from the current estimate of 1.1 percent.

China

China says it will conduct military drills around Taiwan today. This follows an unannounced visit to Taiwan by six US lawmakers.

The Chinese military says the drills are in response to the US sending the “wrong signal” about Taiwan. Six US lawmakers, led by Senator Lindsey Graham, arrived in Taipei late yesterday evening.

Senators Robert Menendez, Richard Burr, Robert Portman, Ben Sasse, and Ronny Jackson round out the delegation. This was an unannounced visit, which will no doubt irritate China even more.

USD/JPY

• USD/JPY trades up 0.4 percent, back above the 126.00 level.
• The recovery in US yields yesterday helped to underpin the dollar and the pair, with a follow-through move seen so far in Asia trading. Just keep in mind that liquidity conditions are thinner today because Australia and New Zealand (and, later, most of Europe) are on vacation for the Easter holiday.
• In any case, when it comes to USD/JPY right now, the technicals arguably tell the story. The pair is poised for an upside break as it maintains above 125.00 and now trades at 20-year highs as buyers seek to maintain above the 2015 high of 125.86.
• If the break holds into the weekly close, it could set the stage for the next leg towards 130.00.

US

After a brief dip in the previous day or so, US yields jumped back up on hopes that inflation had peaked. That was not the case today, as oil prices rose to more than $106 after falling as low as $93.05 on Monday.

Natural gas is also surging, reaching its highest level since November 2008.

Corn is also surging, reaching its highest level since September 2012.

Wheat is still trading below its all-time high (and was down today), but it has risen for the last five trading days.

Import prices in the United States increased by 2.6 percent in the month, compared to 2.3 percent in the previous month. Import prices are up 12.5 percent year on year.

Looking at the US debt market today, the two-year yield has increased by 11.4 basis points, while the 10-year yield has increased by 13.9 basis points to a high yield of 2.835 percent. The 10-year high was 2.836 percent, which was slightly lower than the high from a few days ago. Meanwhile, the 30-year bond reached its highest level since May 2019, reaching 2.929 percent. The 30-year bond yield is approaching the psychological 3.0 percent level.

Today, the dollar is rising as a result of the combination of inflationary forces. From strongest to weakest, the greenback leads the way higher, while the CHF is the weakest.

That more dovish/less hawkish bias aided in sending the EURUSD to its lowest level since April 24, 2020, and below the lows from 2022 between 1.0805 and 1.0808, but the price did rebound into the close and is now at 1.08264. Moving back below the 1.0800 level would be required to re-ignite more downside momentum following the failed break.

I wish everyone a joyous and peaceful Good Friday and Easter.