Japanese Yen Outlook Remains Bullish But For Possible Intervention

By Christopher Vecchio, Junior Currency Analyst

Japanese Yen Outlook Remains Bullish But for Possible Intervention

Fundamental Forecast forJapanese Yen: Neutral

The Japanese Yen wasone of the best performing currencies on the week, as expectedgiven the continued global shift to risk-aversion. While the Yendid not stand up to its usual prowess against the other majorcurrencies – it fell against the British Pound, Swiss Francand U.S. Dollar – it remained significantly stronger than thecommodity currency block. Following last week’s late drop inrisk-appetite after the Federal Reserve decision to delay furtherquantitative easing measures, FX markets saw a mild pullback andconsolidation at the start of the last week of the month and thequarter. As one of the strongestperforming currencies the past few weeks and months, the Yen wasdue for a mild correction sooner rather than later, and this weekcould be that necessary reprieve given its 0.59 percent, 0.30percent and 1.47 percent declines against the Dollar, Franc andSterling, respectively.

As per what has become a usual trend with the Yen in recent months, while there is some data due over the course of the week, very little if any of it will have a lasting impact on the direction of the safe haven currency beyond a few minutes. However, with the Bank of Japan rate decision on the docket, putting this past week’s data in perspective, there is a heightened risk of further intervention to weaken the Yen.

Earlier, on Wednesday, retail trade data came in significantly worse than expected for August, dropping 2.6 percent from July on a monthly basis and 1.7 percent on a yearly basis, a clear indication that the stronger Yen has weighed on the Japanese export sector. Similar to how a struggling Swiss export sector pigeonholed the Swiss National Bank into employing drastic measures to weaken the Franc, the Yen is doing the Bank of Japan nor the Ministry of Finance any favors. Accordingly, while rates are expected to remain on hold when the decision is announced on Friday, any indication of further liquidity injections could stall the Yen’s advance.

No longer than a few weeks ago, former Japanese Finance Minister Yoshihiko Noda was installed as the new Prime Minister of Japan, following the dismissal of Naota Kan. It should be noted that the man chosen to replace Prime Minister Noda in his former role – Jun Azumi – carries little clout within Japanese governmental ranks. Accordingly, it is our firm expectation that Finance Minister Azumi will be serving primarily as a puppet for the prime minister, with sharp interventionist policy at work. With two interventions this year already under his belt, Prime Minister Noda could call for a third, in order to stall the Yen’s advance, providing an exceptionally brief boost to the Japanese export sector. But for this looming threat of intervention, the Yen would be likely testing the 70.000 exchange rate against the U.S. Dollar, in what would be considered a disaster scenario for the Japanese economy. – CV
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/forecast/weekly/jpy/2011/10/01/Japanese_Yen_Outlook_Remains_Bullish_But_for_Possible_Intervention.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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