Yen Posts New All-Time High against US Dollar
Fri, 06/01/2012 - 3:43pm
The Japanese Yen continued its monthly rally into the end of last week, with the USD/JPY falling to the 75.60 area on broad US Dollar weakness against the majors. The action was relatively surprising as risk sentiment was seen as elevated (bringing buyers to the high yielding currencies) and continued comments from the Japanese Finance Ministry suggested that intervention in the currency markets could be seen at any time. The main concern, according to the Japanese Finance Minister (Azumi), is that the significant appreciation that has been seen recently in the Yen will limit the ability of export companies to generate sales revenue and support the nation’s economic recovery. The implicit suggestion here is that the government will be forced to target exchange rates themselves (particularly in the USD/JPY) as the market appears to be shrugging of the official rhetoric and continues to slowly push the Yen higher. At last week’s monetary policy meeting, the Bank of Japan did take some measures to achieve this when it increased its asset purchase program (JGB purchases) by 5 trillion Yen, and this is leading some to argue that we will not see direct intervention but rather more indirect methods of policy easing. If this is the case, it should be viewed as a USD/JPY negative when trading begins next week. The Yen uptrend that has been in place since 2007 will continue to be dictated by these factors, as macro data is limited to Housing Starts and the Nomura PMI survey released on Monday. Risk sentiment will be the controlling influence for the remainder of the week and the main question will be the extent to which markets take seriously any intervention comments made by government officials. Given the current rally, it would not be surprising to see some Yen pullbacks in the near term but, overall, the downtrend remains in place. Technicals: The USD/JPY continued its downward move last week with prices seeing new lows below 75.70. Bounces from here have been minimal and resistance is now seen at 75.90. A break here will take pressure off of the downside but daily momentum indicators remain in negative territory and this is expected to continue in the near term.