Week in FX Asia – Is Future Yen Weakness A Myth?

Certainly a concern to the lemming bear Yen trades out there is that USD/JPY price action has very much disappointed after the BoJ leadership sailed through Japan’s parliament. Buying USD/JPY has been the “no brainer trade” to date, fueled by better than anticipated US fundamental data and supported by the expected reflation BoJ efforts next month. Even this week’s US Retail Sales and claims headline is supporting the dollar, more so now that US yields are on the move. One risk is that US yields could eventually undermine the “long-tooth” equity rally. Rumors of an unscheduled easing measure right after Kuroda takes office has taken the Yen in the direction Japanese PM Abe has pointed all along. Abe’s aide talk about 98-100.0 being “fair-value” levels should become self-fulfilling.

The Bank of Japan will be under new management from March 20th, which is widely expected to lead to the implementation of more aggressive monetary policy, perhaps as soon as April. It looks like this market wants to sit on their hands until then. There are market suggestions that an unscheduled Bank of Japan policy meeting may take place immediately after the new BoJ governor takes office on March 20th. This move would obviously allow time for BoJ staff to study “the practicalities of any new easing proposals before a final decision can be made at the scheduled meeting on April 3-4.” Until then USD/JPY can only do one thing and that’s stay relatively bid. One wonders now how much longer other Asian central banks can go without reacting to the weak Yen threat?

The loudest section of the forex market is trying to bully the masses into believing that holding the dollar is the best chance of a winning hand. More analysts are now expecting the ‘mighty’ buck to sharply outperform GBY, JPY and AUD and some of the other noted G10 members, thanks to higher US yields and an improved US balance sheet. But, where is domestic Japan? The Yen weakness started in September and gathered momentum mid-November when the full dollar bullish breakout above 81.0 occurred. Risk appetite was strong back in September due to Draghi’s OMT and also QE3 announcement and by November Shinzo Abe arrived on the scene and Abenomics began. To date this has been predominately an offshore currency move. Where is domestic Japan? The Japanese housewife has yet to be sold on the weak yen story. They are needed to fulfill PM Abe’s dream.

• Japan Lower House Approves Kuroda as BoJ Governor
• Australia Adds 71,500 Jobs the Biggest Increase in 13 years
• Freely tradable Yuan in 5 years?
• Drought Worsens as Kiwi Dollar Touches 6-Week Low against Aussie
• USD/JPY Moves to 96 Before Japan Opposition Announces BOJ Nominee Stance
• Pre Owned Chinese Home Sales Soar to 280 percent
• North Korea Concern Sees Won Trade Near One-Month Low
• Thai Baht Climbs to 19 Month High
• Australia and N.Z. Dollars Move to 4-Year Highs Against Yen
• RBI’s $91 Billion Bond Buying Makes Fight Against Inflation Challenging
• Hong Kong Authorities Increase Regulation and Taxes to Curb Housing Bubble
• Kuroda Stresses Speed Important in Achieving 2 Percent Inflation Target
• China Inflation Up due to Lunar New Year Festivities
• Central Banks Buying Up AUD Bonds
• N.Korea Threatens Nuclear Warfare
• Higher Yuan Allays US Concerns
• Aussies Buying Homes on Lower Interest Rates

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