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    Asian Session – Yen rallies after Kuroda says the currency is already weak

    The Japanese yen jumped higher today after the head of the Bank of Japan Haruhiko Kuroda said the currency was “very weak”. Dollar / yen slumped as a result, falling from around 124.54 before the speech to around 122.80 – touching a low of 122.49. Still, Kuroda said an easy monetary policy would be maintained as he also did not see any asset bubbles forming in Japan because of quantitative easing.

    In economic data that preceded Kuroda’s testimony before parliament, machine orders for April rose much faster-than-expected. Machine orders rose by 3.8% month-on-month instead of falling by 1.8% as economists expected. Although this is a volatile series and gains could reverse in coming months, the latest data backs other evidence that shows that business investment and capital expenditure is recovering in Japan, which in turn is helping the economy.

    In the other important central bank official appearance of today, RBA Governor Glenn Stevens sounded downbeat on the prospects for the Australian economy and warned that further interest rate cuts were an option. A slowing Chinese economy and the inability of households to raise consumption were cited as the key threats. Nevertheless, the aussie managed to rise above the 77 cents versus the US dollar at 0.7715.

    The euro was also advancing to around 1.13 versus the dollar, as it took advantage of some weakness of the US dollar. Today could see some further developments on Greece, as the country’s Prime Minister will meet the German Chancellor Angela Merkel. The euro was also supported by rising bund yields, as the 10-year rate was trading at 0.97% – just a couple of basis points below its recent high. US rates were also rising however, with the 10-year Treasury rate at 2.44%.

    Looking ahead, the most important economic news will come out of the UK today. Firstly, industrial production for April will be announced. It is expected to show a slowdown from the previous month’s pace. Secondly, much later in the day, the Governor of the Bank of England will give his annual speech at Mansion House; a venue that has been chosen in previous years for giving some indications of future monetary policy. Tomorrow will feature additional key events such as the meeting of the Reserve Bank of New Zealand and US retail sales for May.

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