USD/JPY gaped higher to hit 94.65 at the start of Asian trade on the speculation that Prime Minister Abe will nominate the ultra dovish Haruhiko Kuroda to the post of BOJ Governor, but the rally quickly fizzled with the pair dropping below the 94.00 level as there was no official confirmation from the government and traders took quick profits on the run up.
Mr. Kuroda is currently the head of the Asian Development Bank and is viewed as a very experienced policymaker and was Japan’s “top currency diplomat” in the 1990’s. He speaks fluent English and is considered to be on par with the world’s top monetary officials. If nominated it is likely he will be approved with ease by the Japanese parliament. The opposition party today noted that it would “be hard to oppose the nomination.”
Mr. Kuroda’s appointment would no doubt turn the BOJ policy to a much more accommodative stance, but much depends on the exact measures that he will take as the Governor of the central bank. If Mr. Kuroda signals that the BOJ’s QE program will be expanded immediately instead of 2014 as announced earlier and if he shows a willingness to engage in unorthodox measures such as purchasing of foreign sovereign debt, the rally in USD/JPY will likely continue with force and push the pair through the 95.00 level and perhaps even towards 100.00 as the market continues to sell the unit.
However for now, the pair has clearly run into some profit taking which was exacerbated by news that HSBC flash PMI reading dropped to 50.4 from 52.2 eyed. This was the first month over month decline since August of 2012 and the index perilously close to the 50 boom/bust level. Some analysts have argued that the decline may have been caused by the seasonal skew due to the Lunar New Year holidays, but Nomura economist Zhang noted that over the past seven years such seasonal adjustments were only responsible for .95 of the dip indicating that today’s data signals a deeper slowdown in growth.
If these concerns about global growth are taken more seriously as the North American session comes on board then USD/JPY could be in for more selling with the pair possibly dropping to 93.40 to fill the weekend gap caused the by Kuroda nomination rumor.