AUD Trade Balance continues to shrink - JPY Eco Watchers above 50 BOJ keeps rates steady - EZ Trade Surplus wider - CAD employment on tap. USD/JPY continued to demonstrate strength against both euro and pound in relatively quiet trade in Asia and early Europe as traders positioned ahead of the G-7 meeting this week-end.
As expected the BOJ left rate unchanged at 25bp and at his post announcement press conference Governor Fukui offered little new information stating simply that ""We will adjust interest rate levels slowly while keeping a close eye on economic and price moves ahead."
This gradualist approach is consistent with BOJ statements in the past, although the fact that Governor Fukui did not completely rule out the possibility of more rate hikes before the year end suggests that Japanese monetary authorities remain flexible to the idea of further tightening especially as pressure from Europeans mounts.
EUR/JPY slipped to a fresh three week low today at 147.55 well off the 150.00 level it traded at just a few day ago as jawboning by Euro-zone policy makers clearly had an impact in the market. The key question going forward however is - will this move hold? If G-7 meeting fails to produce any definitive language on the need for global rebalancing, the market, having corrected the recent rally in the cross, may well revert to the tried and true carry trade theme, as EZ monetary authorities will almost assuredly proceed with further rate increases at their next meeting while their Japanese counterparts continue to remain stationary.
One positive piece of news for yen bulls was the release of the Eco-Watchers survey which rose above the 50 boom/bust level once again. With oil prices significantly lower, the Japanese consumer, buoyed by healthy corporate demand which has driven employment gains to decade long highs may be finally ready to begin spending.
As BOJ sees additional evidence of stronger consumer behavior, the monetary authorities will become much more comfortable with further rate increases. Therein lies the best hopes for a yen rally as we move into the fall season.