When Japan Returns

Japan's markets were closed Monday to celebrate the spring equinox. There are a number of economic reports that will be featured in the last full week of the fiscal year.

First thing on Tuesday, the BOJ will publish the minutes for its Feb meeting. Given that at the March meeting, the BOJ doubled the size of its 3-month fixed rate lending facility over the objection of a couple of its board members, it will be interesting to see the extent that additional measures were discussed. To the extent they were not discussed at length, it would give a greater appearance of political pressures and might be seen as yen negative, though the politicization has been long appreciated by the market.

Early on Wed, Japan reports Feb merchandise trade figures. On an adjusted basis, Japan's merchandise trade surplus likely rose markedly to around JPY560 bln from JPY85.2 bln. The rise in exports (40.9% year-over-year in January) is benefitting from favorable base effects and stronger demand in Asia.

On Thurs, Japan reports Feb national CPI figures and Tokyo's March figures. In Feb, Tokyo's deflation moderated slightly to -1.8% year-over-year from -2.1% in January. Likewise, the national figures also likely moderated in Feb to -1.1% from -1.3% in Jan. The market expects a slight further moderation in the March reading for Tokyo. Japan is the only major industrial country to still be experiencing deflation--outright negative CPI readings. Deflation complicates the challenge for Japanese policy makers. We have noted previously that one consequence of deflation that many market participants do not seem to appreciate is that it serves to make real interest rates unusually high in Japan.

Another development that investors will want to monitor is the suggestion that Japan's Bank's for International Cooperation may extend the March 31 termination deadline for the Market Access Support Facility, which guaranteed up to JPY500 bln of sovereign samurai issuance. A number of Asian and Latam sovereigns had taken advantage of this facility. Indonesia is thought to be planning a JPY35 bln offering next month and the Philippines issued a samurai last month that was 95% guaranteed by JBIC.

The Japanese government wanted to support the samurai market after Lehman defaulted on a samurai note in 2008 and the issuance fell by more than 40% last year. Perhaps Greece might be interested.

Meanwhile, as the euro has come under more pressure in the North American morning, pushing through the $1.3480-$1.3500 support, the yen has strengthened--allowing the dollar to test support near JPY90.00 Last Thurs, the dollar has slipped to about JPY89.80 and the previous week the greenback touch JPY89.65. A break of those lower levels could signal a test on the JPY88.00 approached at the start of the month. With exports growing and the trade surplus growing, Japan may find it difficult to justify intervention to its G5 partners.