Week in FX Asia – A Yen to do something?

This weekend’s Cypriot event risk scenario has encouraged most traders to be more cautious. Very few have the stomach to buck the trend so late in the game. Many are doing so by reversing the bets that were strapped on during more optimistic times and this includes the “lemming” short yen trade, the trade that has the yen weakening about -20% against the dollar since last September.

The currency from the “rising sun” initially slid as Shinzo Abe campaigned for prime minister with a promise that he would rescue Japan from its prolonged bout of deflation. He is to achieve this by having the BoJ target +2% inflation. By doubling the previous inflation target, the market got swept along with an aggressive easing in monetary policy and comfortably sold yen amongst the crosses.

Fast-forward a few months; the BoJ has a new governor, Haruhiko Kuroda, who took the reins earlier this week, a long-time advocate of an inflation target and easier Japanese monetary policy. The market was expecting something significant at his inaugural press conference Thursday. Up until now, it was mostly rhetoric. Investors require stern action to compliment their positions –he came, he spoke, and he disappointed. Governor Kuroda was unable to offer any particulars on specifically what aggressive new measures he would take to fight deflation and weaken the Yen.

The fact that the Yen is being bought after stronger US data this week is revealing. The lack of any solid news from Cyprus has left some of the market hedging for the worst. Investors seem to want to pair back their exposure on the short Yen trade. Even Japan’s fiscal year end should end up being Yen positive. Monday trading could be a game changer.

• China and Brazil Central Banks to Agree on Currency Swap Deal
• Japan Lower House Approves 2013 Tax Reform Plan
• Japan Policy Makers Hedge Bets on Inflation Target Timeline
• China HSBC Flash PMI Rebounds to 51.7
• Economists Expect Singapore Economy to Grow 2.8 percent in 2013
• 1 in 4 Bentleys in the World is Sold in China
• Fears of a China Hard Landing Resurface
• PBOC Boosts Fixing as Yuan Climbs to 19-Year High
• Australia Treasurer Swan wants to see more Retail Corporate Debt
• China FDI Grows by 6.32 percent in February
• Shirakawa Officially Resigns to the Bank of Japan
• Japan to Arrange a 10 Trillion Stopgap budget for 50 days
• Japan Formalizes Kuroda as Head of BoJ
• Japan PM Abe to Protect Farming in TPP Free Trade talks
• Survey Shows 63 Percent of Japanese Back TPP Free-Trade talks
• Australia Government Revenue Expected to Fall

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.