US stocks gave back close to three quarters of Tuesday’s gains as risk aversion seeps back into the financial markets.
USD/JPY plunged below 100, dragging pairs like AUD/JPY, GBP/JPY and CAD/JPY down with it. The futures curve is still pricing in a strong probability that US interest rates will fall to 1.75 percent by the end of June which means that traders expect another 50bp of easing from the Federal Reserve. Toshihiko Fukui is no longer the Governor of the Bank of Japan. His term officially ended today and Masaaki Shirakawa is expected to serve as acting Governor until two opposing parties in the government can agree to a new central bank leader. This is the first time in the country’s post war history that there is no permanent Bank of Japan Governor. Under a calmer market environment, this may have mattered for the Japanese Yen, but these days, risk aversion dominates. It is also important to mention that March 31st is the fiscal year end in Japan. Repatriation flow may help to explain the recent pressure on USD/JPY.