FX Week 26 May 2013

FX Week

Focus returns onto the JPY

FX markets have rotated their focus on to the JPY over the past few days, as extreme volatility in Japanese asset markets has raised questions about the future of ‘Abenomics’; prompting liquidation of some short JPY positions. USD/JPY ended the week at 101.30, down from the highs of 103.70 reached on Wednesday morning. In the coming week, the JPY is likely to remain the centre of attention as the BOJ seeks to reassert itself over the JGB bond markets and thereby restore stability to the Nikkei as well as to the JPY.
The Nikkei plunged by 7.8% on Thursday, and although it recovered modestly on Friday, markets will be looking for more direction from the BOJ Governor Kuroda after he downplayed market movements in his press conference last week. On Friday Kuroda said that he wants to avoid volatility in bond markets and that the BOJ has announced sufficient monetary easing, also saying that he does not have targets for stocks or for the Nikkei. His comments came as the BOJ stepped into the market to buy government bonds for a second consecutive day. Earlier today Kuroda went further by saying that increases in bond yields should reflect economic expectations, saying that rising yields would be negative if they are not based on genuine economic hopes.
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