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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 weaken overnight following the announcement yesterday from BoJ Governor Shirakawa that he will step down earlier than expected on the 19th March.

His term was officially scheduled to end on the 8th April and Yen weakness is likely a reflection that investors are bringing forward their expectations for a significant shift in BoJ monetary policy easing when the new BoJ leadership is in place. Hardman notes that in the press conference BoJ Governor Shirakawa stated yesterday that his decision to end his term early was not due to political pressure.

With the BoJ Governor and two Deputy Governors' terms all set to end now on the same day, Hardman feels that it allows the government to decide upon their replacements as a package deal potentially providing a more powerful signal to the market. BoJ member Sato has also been speaking overnight stating that a new level of actions is needed to reach the 2.0% inflation target stressing that the yen's level and asset prices are crucial to meet the inflation target although relying upon a weaker yen alone would be an unbalanced idea.

He writes, "According to Sato, the BoJ's current account balance may swell towards JPY90-100 trillion by the end of 2013. Sato also commented upon foreign bond purchases stating it would likely require international co-ordination and that they would not necessarily have to be carried out by the BoJ. It was also notable that IMF Deputy Managing Director Lipton supported the nee government's policies to defeat deflation."

The trade-weighted yen has now fallen sharply by close to 20% since July of last year, with the scale of the yen's decline in percentage terms now similar to that experienced during the peak of the yen funded carry trade years between 2005 and 2007, and the Asian financial crisis period between 1997 and 1998. Indeed over the last six months the trade-weighted yen's decline in percentage terms is the largest since late 1995 when USDJPY also formed a bottom at around the 80-level. Hardman notes that on the it marked the beginning of a three year weakening trend for the yen with USDJPY.
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