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Forex pairs in this Article » USD/JPY (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Yen has continued to strengthen in the Asia trading session amidst less liquidity conditions given the Japanese holiday.

He sees that the Yen is strengthening heading into this weeks G20 meeting of Finance Ministers and Central bank Governors, reflecting some concern amongst market participants that it could prove a forum to highlight building international opposition to the Japanese authorities attempts to weaken the Yen.

The G20 meeting is scheduled to take place on the 15th and 16th of February. Japanese Finance Minister Aso appears to have attempted to ease international concerns heading into that meeting by reportedly stating on Friday according to Reuters that the yen has recently weakened more than intended when speaking in the Lower House Budget Committee. Finance Minister Aso's comments were also translated on Bloomberg as stating that the pace of Yen weakening has been too fast although it remains uncertain whether he actually meant "too" fast.

Hardman notes that the comments have created some confusion amongst investors' in the near-term regarding the government's yen policy, although in the long-run it remains more clear that they still see a weaker yen as part of the solution to defeat deflation. He writes, "Japanese officials have previously stated that USDJPY levels closer to 100 would be optimal implying that they would like to see the yen weaken further still."

As such, he feels that it is unlikely that Aso's attempts to dampen international concern over Japan's weaker yen policy will prove fully convincing. Yen weakness has been triggered by more aggressive expectations for BoJ monetary policy easing ahead. Asian Development Bank President Kuroda, who is one of the leading candidates to be the next BoJ Governor, commented overnight that "some additional" BoJ monetary easing measures could be justified for 2013.

Hardman comments that on current plans, the size of the BoJ's asset purchase programme as a % of GDP is already scheduled to overtake the size of the Fed's by the end of 2013 helping to lift USDJPY. He finishes by writing, "Kuroda also commented that the yen has "so far" been in a "natural adjustment" from an excessive value. The Japanese government's attempts to reflate the economy through asset price inflation were also evident overnight by comments from Economy Minister Amari who according to Kyodo news stated that the government will continue in its efforts to drive the Nikkei to 13,000 by the end of the fiscal year."
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