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FXstreet.com (Barcelona) - The foreign exchange market has been relatively stable during the Asian trading session following a strong rebound in high beta currencies yesterday such as the Australian and New Zealand dollars driven by a pick up in investor optimism over the US fiscal cliff. According to the BTMU Research Team, "While steps appear to have been made in the right direction towards a compromise agreement, we still expect investors to remain cautious heading into year-end until a final deal is in sight, which is likely to result in choppy market conditions."

The improvement in risk sentiment has also served to reinforce the recent yen-weakening trend, which has been triggered by building expectations of a significant shift towards more aggressive monetary easing from the BoJ following the parliamentary election on the 16th December. The yen has been little impacted by the BoJ's decision to leave monetary policy unchanged at today's meeting. The BoJ's assessment of the Japanese economy was similarly left unchanged noting still that it "has been weakening somewhat" and is expected to "remain weak for the time being". The BoJ also reaffirmed its pledge to help overcome deflation stating it will "pursue aggressive monetary easing in a continuous manner".

"Market attention will now focus upon the next BoJ policy meeting scheduled for the 20th December, which is likely to have a greater impact upon the yen given that it falls after the election and will more directly impact current expectations of more aggressive BoJ easing following the election. We are looking for a further JPY10.0 trillion asset purchase expansion in December, although the scale of such easing is unlikely to materially weaken the yen." the team adds.
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