Yen Corrects as BOJ Offers Nothing New

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Market Drivers for Nov. 26 2012
Yen and yen crosses correct after BOJ minutes reveal nothing new
All eyes on EcoFin, but deal for Greece likely to be stop gap
Nikkei 0.24% Europe -0.51%
Oil $87/bbl
Gold $1747/oz.

Europe and Asia:
JPY Shirakawa Speaks more credit easing likely but no big QE
JPY BOJ Minutes Oct 30
CHF Employment Level 4.12M vs. 4.09M
EUR German GfK Consumer Climate n/a

North America:

Risk FX was slightly lower in relatively quiet trade on the first trading day of the week with yen crosses taking the brunt of the decline as USDJPY corrected to the 82.00 level after a massive rally last week. The BOJ released it minutes of the last meeting but revealed no fresh information as the Japanese monetary authorities essentially reaffirmed their view that Q4 GDP will likely show material weakness but the economy will rebound in 2013.

Speaking to the press BOJ Governor Masaaki Shirakawa acknowledged that the high exchange value of the yen was hurting the export led Japanese economy.“The BOJ is concerned that the appreciation of the yen could have adverse effects on Japan’s economy — mainly through a decrease in exports and corporate profits as well as deterioration in business sentiment,” he stated. However, Mr. Shirakawa shield away from setting any exchange rate targets noting that, “As for the yen’s rise in itself, the government is responsible for currency intervention.”

Mr, Shirakawa took credit for the recent weakening of yen by stating that, “The BOJ’s aggressive monetary easing, which consists of its virtually zero interest rate policy and its purchase of financial assets through the (Asset-Buying) Program, coupled with measures including the government’s intervention in the foreign exchange markets, has fended off the yen’s appreciation to some extent.”

In fact, BOJ policy moves had absolutely no effect on yen depreciation and the currency only started to weaken after calls for much more dramatic measures by Shinzo Abe, the leading candidate for the PM of Japan. Therefore, after listening to Mr, Shirakawa repeat his gradualist, cautious approach to monetary policy, the market found a perfect excuse to correct the oversold conditions and take USDJPY below the 82.00 level.

After staging a massive breakout last week, the pair remains in an uptrend but may spend the better part of this week consolidating its gains as the 82.50 level remains chunky resistance for the time being. One possible catalyst for more gains could be this Thursday’s US Q3 GDP report especially if it can hit the 3.0% mark indicating that US growth is stronger than consensus view.

In the meantime with no US data on the docket, the market focus will remain on Europe, with all eyes on the EcoFin meeting today. If the minister approve a bailout for Greece the EURUSD could see a knee jerk rally to 1.3000 level but may have difficulty making much progress beyond that point. With sovereign debt risk possibly off the table for the time being, the focus will turn back to EZ economic performance which is likely to remain weak for the foreseeable future.

Boris Schlossberg
Managing Director

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