Even though the dollar benefited from the upside surprise in retail sales, it is the Yen weakness that pushed all of the major currencies lower. The 1% drop in USD/JPY triggered large declines in pairs such as EUR/JPY, NZD/JPY and CHF/JPY. EUR/JPY selling for example has driven EUR/USD lower. Over the past few weeks, the one way sell-off in the Yen and the promise of even easier monetary policy caused a surge in demand for Yen funded carry trades. However last night, Japanese Economy Minister Amari’s comment about the potential negative aspect of an excessively weak currency triggered a wave of profit taking and deleveraging. Considering that USD/JPY has become extremely overbought, corrections are not surprising but it is important to realize that Amari’s bark is bigger than his bite because the Japanese would never stand in the way of Yen weakness especially with their economy at its current state. Yen weakness also goes a long way in achieving Prime Minister Abe’s goals of ending deflation and boosting growth.

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