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FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that safe haven currencies such as USD and JPY have remained on the defensive following the release of the US unemployment report on Friday.

He comments that the report provided further evidence that the US labour market is healing although was not strong enough to challenge current expectations that loosening Fed policy will remain in place for the foreseeable future supporting risk assets including the high beta G10 currencies of the Australian and New Zealand dollars.

Hardman sees that the main development in the January establishment payrolls survey was the significant upward revisions with employment growth in the establishment report having averaged 200k per month over the last three months, compared to an average of 181k per month in 2012 and 175k in 2011. He feels that it marks a notable acceleration in employment growth from when the Fed embarked upon QE3 in September of last year when at that time employment growth was averaging around 90k per month over the last three months.

In contrast, Hardman feels that the household survey revealed a less favourable picture of employment growth which has continued to expand only modestly since September leaving the unemployment rate broadly unchanged at 7.9%. The recent stickiness of the unemployment rate will serve to reinforce expectations that the Fed will continue to carry out open-ended QE purchases through the rest of 2013. However, should employment growth continue to expand by around 180k-200k per month going forward the unemployment rate is likely to begin drifting lower again in 2013.

He continues to note that FOMC voting member Bullard described the recent pace of employment growth as "impressive" noting that the Fed could end or slow the monthly pace of QE3 if the US economy continues to improve. However, for now, Hardman feels that this is not a pressing concern for investors who are increasingly rotating into riskier assets as the global economy rebounds alongside loosening liquidity conditions.

Further, the ongoing shift to more aggressive monetary easing by the BoJ has helped accelerate the sell off for yen. Japan Finance Minister Aso stated yesterday that the government is attempting to imitate policies from his Depression-era predecessor Korekiyo Takahashi who as finance minister in 1932 increased fiscal spending by 34% doubling bond issuance which the BoJ was instructed to underwrite according to JCER.

Hardman comments that the weakening Yen highlights that foreign investors are more concerned over the success of the government's attempts to reflate the Japanese economy, while stable government bond yields highlight that domestic investors are not yet unduly concerned. He finishes by noting that interestingly Takahiro Mitani who is President of Japan's public pension fund has stated that it is considering reducing the weight it attaches to Japanese government bonds in light of the government's new economic policies. Any changes to their portfolio "could begin at the end of the next fiscal year". GPIF held 69.3 trillion of Japanese government bonds at the end of September 2012 accounting for around 64% of their total assets.
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