USDJPY squeaked higher in morning Asian trade to take out the psychologically important 80.00 barrier but stalled right at that point and fell back into the 79.80’s at the start of European dealing as risk aversion flows set it. Finance minister Koriki Jojima denied a local press report that said the government is asking the Bank of Japan to boost its asset buying program by Y20 trillion to Y100 trillion.

Asked about the report, Jojima told reporters, “That is not true.” “The government and the BOJ agree that overcoming deflation is an important policy issue. I expect the BOJ to continue decisive monetary easing by keeping in close contact with the government,” he said.

Despite the protestations many analysts believe that Japanese officials will become much more assertive on the issue of currency devaluation as the country’s export position continues to deteriorate. Since 2008 they yen has appreciated massively against most of the G-20 currencies including 65% against the euro and 30% against the yuan severely hampering Japan’s ability to compete in global markets as its domestic economy remains mired in deflation. The country just reported the worst trade figures in 30 years as the combination strong currency and conflicts with China depressed exports. Japan’s car sales in China – its biggest export market – tumbled by more than -14% in September.

Therefore there is growing pressure on the BOJ to vastly expand its QE programs in order to offset the aggressive currency devaluation from the Fed and the ECB. Up to now Japanese monetary policymakers have only taken tentative steps in that direction and a result the yen has continued to appreciate even as Japan’s economy sinks deeper into stagnation. The latest rally in USDJPY has been based largely on speculation that Japanese officials will finally being so passive on the monetary front, but if they continue to procrastinate the up move will be unwound much like all the other false rallies this year.

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