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Tuesday, May 22, 2012

Yen weakness and BOJ meeting

Bank of Japan started today the monthly two days meeting to discuss the economic situation that usually precede any rate or monetary policy adjustment; with an interest rate close to zero there won't be any action on the rate side but what speculators are betting on is an increase or continuation of bond purchase that usually act as a boost to equities.
This is probably the reason of the YEN weakness we've seen from the beginning of trading on Monday across Asia that continued through the North American session with a pause during the European opening hours.

                                         CLICK ON THE CHART TO GET A BETTER VIEW

On the chart you can see how the USD/JPY bounced from the 61.8% Fibonacci retracement calculated from the low of February the 2nd to the high of March the 15th.

Yen particularly weakened against the so called "commodities currencies" (CAD-NZD-AUD) and perhaps the most aggressive traders and money managers are starting a new round of "carry trade" after the huge unwinding of position that took place on the currency market last week.

The Japanese currency was sold massively against the Mexican Peso and Singapore Dollar among the others; the MXN/JPY is considered the king of carry trade since it offers one of the greatest interest rate differential on the currency spot market.

Yen strength and volatility is seen by Japanese officials as the biggest threat to a stable recovery as recently stated by Nissan CEO Carlson Ghosn and we all know the impact on the GDP of the third largest economy of the world the automotive industry has.

The leadership of Japan in electronic products was gained over the years by more aggressive nations like South Korea and China in fact, SONY, the biggest and most famous Japanese producer of consumer electronics has recorded, in 2011 the first year in red since more than two decades.

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