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Yen Strengthens as BOJ Stays Pat

Last updated 12/21/2011 3:19 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The BOJ left its benchmark rate unchanged between 0.0% and 0.1% but warned that the country’s recovery has stalled as business sentiment deteriorated in the wake of weaker export demand. “The pick-up in Japan's economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the yen,” the central bank noted, adding that ”Improvement in business sentiment has slowed on the whole despite steady improvement in domestic demand-oriented sectors."

The latest economic data released by the Finance Ministry showed that exports contracted for the second month in a row. Exports shrank by -4.5% from  a year earlier after declining by -3.8% in October as well.  

In the post meeting press conference BOJ Governor Masaaki Shirakawa noted that the central bank will continue to pursue policy with an eye on price and  financial stability next year emphasising the need to reconstruct Japan’s fiscal structure.  Mr.  Shirakawa also stated that declines in fiscal credibility would be a huge shock to economy indicating that the central bank does not plan on dramatically expanding any of its monetary stimulus programs for the foreseeable future. Currently the BOJ has a modest QE program in place whose impact has been limited at best and clearly Japanese monetary authorities have no appetite for further policy initiatives for the time being.

The yen strengthened  slightly in the wake of Mr. Shikarawa’s remarks with USD/JPY dipping to a session lows of 77.70.  The pair has been rangebound with a 50 point zone between 77.50 and 78.00 for the past several weeks but may head higher if US economic continues to improve. With Japanese policymakers continuing to remain passive save for an occasional round of intervention, the price action in the pair will be driven by developments on this side of the Pacific. Today’s US Existing Homes report which may surprise to the upside given yesterday’s better housing data could provide a boost for the pair later in the day and push back towards the 78.00 figure.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.