Monday’s market-wide unwinding of risk and carry positions lost steam into the early trading hours of this morning. This pull back in demand for yen comes as fear that the UK’s Bradford & Bingley would catalyze the next leg of the ongoing credit crunch have clearly died down as the lender has yet to report any problems with liquidity (unlike the Northern Rock and Bear Stearns episodes).
Instead, the Fed continued with its effort to snuff out financial turmoil with another scheduled $75 billion TAF auction and comments from Chairman Ben Bernanke that the outlook for the world’s largest economy was improving and rates would likely be held steady going forward. On the fundamental front, activity was otherwise muted. The BoJ reported a 0.9 percent drop in the monetary base to further highlight the lack of meaningful inflation throughout the Japanese economy. Looking ahead though, event risk will pick up with the Ministry of Finance’s capital spending report for the first quarter. A historical market-mover, this indicator has lost some of its sway recently. However, after the surprise strength in the preliminary 1Q GDP reading, the expected five-year low from the investment indicator may be more influential.