It’s been a quiet start to the week’s trade in FX with Australian markets closed for holiday, flows in Asian session have been thin and marked by profit taking in the yen crosses. Both USD/JPY and EUR/JPY initially opened higher setting nominal new yearly highs in early New Zealand trade, but the enthusiasm quickly faded and the pairs quickly turned lower as buyers rushed to book profits.

In the Japan the opening of Parliament generated a slew of fresh rhetoric from key Japanese officials including PM Abe who again reiterated that he wants the BOJ to achieve its 2% inflation target as soon as possible. The Japanese government also issued its growth forecast for 2013 that could give the government some leeway in compiling a budget for the upcoming fiscal year in April. The report estimates Japan will post 1% real growth in the fiscal year ending in March and 2.5% growth in the following fiscal year of 2013. These projections will be used to gauge tax revenue for a budget slated to be approved this week.

The 2.5% forecast may be considered too optimistic by many market observers as it is still not clear if the recent weakening of the yen will have the desired impact on growth that Mr. Abe seeks. Some analysts have pointed out that demand may slump in the face of increase in sales tax which could offset some of the export benefits of lower yen.

USD/JPY continued to trade lower in early European trade with the pair circling around the key 90.50 level as sellers remained in charge. After such massive run up last week that saw the pair gain 3 big figures, this week’s corrective action is natural. But with momentum still very much in USD/JPY’s favor the pair could resume its uptrend in North American session if the Durable Goods and Pending home sales data surprises to the upside pushing US yields higher which could help USD/JPY retake the 91.00 handle.

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