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At this week's midpoint what have we witnessed so far? On Monday, weaker data has added to the global growth slowdown scare. The softer eurozone releases were not a surprise, the "real" surprise has come from China, where data for Q1 and for the month of March suggested that Chinese growth slowed substantially early in 2013. Add an event risk tragedy and we have had a global market seeking safety, with government bond yields falling and the U.S. dollar rising against many currencies.

On Tuesday, there was a remarkable shift in risk appetite from Boston market levels – fueled by a large Asian central bank buy EUR/USD order, official U.S. comments alluding to jobs data and a need for further QE along with a surge in gold prices from depressed levels. This brings us to this morning and we are back to yen – the main game in town. The past two-day’s events have tried to stall the yen’s decline ahead of the key psychological 100 print. Despite trading at 95.80, the dip has been short lived and we are very close to pre-week levels. Over the next two days the market will be bombarded with words like currency manipulation, currency wars, asset devaluation -- all saber rattling dialogue that seems to be a pre-requisite ahead of any sensitive G20 meeting.

China is no fool – so far it has been trying to distance itself from the Asian pack – revaluing yuan lately to record fix highs will probably take the spotlight off their currency manipulative process. It’s only natural that the BoJ’s pledge to inject +USD1.4-trillion over the next two years has led to talk of currency wars, the strongest protests are from Japan's closest neighbors. It’s a bit of a surprise, but for perception reasons only, the U.S. is expected to pressure Japan on the yen at the G-20. In reality, the major industrial countries are most likely taking the same view as the IMF – strongly support Governor Kuroda’s moves to end deflation. Post G20 will bring a different game plan –USD/JPY should get the green light to be trading well over 100, until then it’s a game of patience.

The IMF has again trimmed its global forecasts and continues to see a global “bumpy recovery.” They have cut global growth estimate to +3.3% in 2013 from +3.5%, and to +4% from +4.1% in 2014. Earlier this week, the IMF’s Lagarde was a vocal supporter of Japan’s aggressive easing policy program and they have now revised Japan’s growth higher to +1.6% in 2013 and +1.4% in 2014 from +1.2% and +0.7% respectively. The BoJ’s actions are obviously seen as appropriate and its impact on their currency logical. The IMF is urging European policy makers to use “aggressive” monetary policy. This second year of contraction is leaving the region's recovery lagging behind the rest of the world.

Sterling is a sharp underperformer after this morning’s Bank of England minutes. EUR/GBP has managed to print a new one-month high, while GBP/USD is off one cent from its intraday starting point after U.K. policy makers indicated that they expect inflation to stay higher for longer and said they saw merit in a possible extension of a “funding for lending scheme.” It was a 9-0 unanimous vote to keep rates at +0.5% and a 6-3 vote to keep the size of the Central Bank’s bond-buying QE program at +GBP375m. The majority believed more liquidity would promote further inflation and a weaker sterling. Even under the new “remit,” policy makers concluded that returning annual inflation (in March +2.8%) to +2% target quickly would hurt the economy.

The Bank of Canada takes center stage later this morning. USD/CAD has consolidated its recent gains ahead of the Bank’s rate decision. The market expects no changes to the BoC’s +1.00% target rate. There are whispers of dovish comments but most market observers expect a neutral stance. Policy makers could downgrade its short-run GDP and core-inflation forecasts based on Q1 results to date. So far this week, the loonie has benefited from expectations of inflows from Japan – however, any slowdown in U.S. momentum over the coming weeks will again weigh on the loonie outright. The dollar is well-supported sub-1.02 levels and there is little resistance topside until 1.03.

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Source: At Halftime: Yen Takes A Breather