The market is going into the BOJ meeting expecting the bank to add at least ¥5 trillion more to its asset purchase program. Such a move should weigh on the JPY, especially if it’s congruent with general risk appetite – which we saw in the New York trading session. The best candidates to take advantage of any easing announcement – especially one in which ¥10 trillion is added -would be the GBP/JPY and CAD/JPY, as these respective currencies central banks’ have taken on a more hawkish posture of late and have the best chance to retest their highs from late March.

In the upcoming Asian session Japan releases its March trade balance. If the figures stick to the consensus forecast of another deficit, they are likely to pressure Japanese equities and risk sentiment meaning that the Japanese yen could strengthen against higher yielding rivals. However a better than expected increase in exports could help swing sentiment to a positive tone.

The return of European traders to their desks following a 4-day holiday weekend was an unpleasant one, as equities sold off sharply throughout the Europe, extending a sense of risk aversion started in Asia and then continued in the US. Concerns continue to build around the deteriorating situation in Europe – mainly as a result of Spain’s and Italy’s rising yields – as well as last Friday’s non-farm payroll report which adds to concerns that the US economic momentum is slowing. With no offer of easing from Fed Chairman Bernanke in a speech yesterday we are seeing a correction in equities playing out that should favor the JPY and USD.