Forex Flash: Yen strengthens following comments from Econ Minister – BTMU
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USD/JPY
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that Yen has strengthened in a knee Jerk fashion overnight following comments from the Japanese Economic Minister Amari, which have dampened investor expectations regarding the scale of Yen weakness desired by the government.
He continues, "In speaking to reporters Economy Minister Amari emphasized the harmful effects on Japanese people's livelihoods likely to result from a spike in import prices if the yen excessively weakened which provide an offset to the benefit provided to exports. The market moving nature of the comments is more likely a reflection of stretched short yen positioning at present rather than the nature of the comments which are hardly ground breaking."
Japanese officials have already signalled over the past month that they are more comfortable now with USDJPY in the 85-95 range and there also appear to be an ongoing attempt to dampen concerns amongst other G7 members that the Japanese government is deliberately attempting to weaken the Yen.
Economic Minister Amari reiterated the most convincing case that recent Yen weakness is market driven, stating that the Yen is currently "automatically correcting" to a level "in line with Japan's fundamentals". Hardman adds, "According to our long term valuation models yen over valuation has almost fully corrected. As a result if the Japanese authorities continued to attempt to actively encourage another sharp adjustment lower driving the yen into more undervalued territory ahead it would likely run into greater international opposition."
He continues to note that as evident by unusual comments last week from Fed President Bullard who stated that he is already a "little disturbed that Japan seems to be taking a more explicit exchange rate policy", the growing unease over the scale and pace of the recent yen sell off which has continued largely uninterrupted since July supports his view that the initial adjustment phase is maybe largely complete, which will likely be followed by a period of consolidation for the yen.
He finishes by writing, "Still the case for further monetary easing from the BoJ remains in place which will likely keep the yen trading on a weak footing as evident by the release of the BoJ's quarterly Sakura report today. The BoJ downgraded their economic assessments for eight out of nine regions."
He continues, "In speaking to reporters Economy Minister Amari emphasized the harmful effects on Japanese people's livelihoods likely to result from a spike in import prices if the yen excessively weakened which provide an offset to the benefit provided to exports. The market moving nature of the comments is more likely a reflection of stretched short yen positioning at present rather than the nature of the comments which are hardly ground breaking."
Japanese officials have already signalled over the past month that they are more comfortable now with USDJPY in the 85-95 range and there also appear to be an ongoing attempt to dampen concerns amongst other G7 members that the Japanese government is deliberately attempting to weaken the Yen.
Economic Minister Amari reiterated the most convincing case that recent Yen weakness is market driven, stating that the Yen is currently "automatically correcting" to a level "in line with Japan's fundamentals". Hardman adds, "According to our long term valuation models yen over valuation has almost fully corrected. As a result if the Japanese authorities continued to attempt to actively encourage another sharp adjustment lower driving the yen into more undervalued territory ahead it would likely run into greater international opposition."
He continues to note that as evident by unusual comments last week from Fed President Bullard who stated that he is already a "little disturbed that Japan seems to be taking a more explicit exchange rate policy", the growing unease over the scale and pace of the recent yen sell off which has continued largely uninterrupted since July supports his view that the initial adjustment phase is maybe largely complete, which will likely be followed by a period of consolidation for the yen.
He finishes by writing, "Still the case for further monetary easing from the BoJ remains in place which will likely keep the yen trading on a weak footing as evident by the release of the BoJ's quarterly Sakura report today. The BoJ downgraded their economic assessments for eight out of nine regions."
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