Week In FX Asia – Will Abe’s Policies Weaken Yen Further in 2014?

There is great expectation that the U.S. and Europe will lead any rebound in the developed market. Next year, the U.S. is expected to reduce the fiscal drag (increased taxes and spending seizures) that the American economy has endured in the last few years. Hopefully, this will lead to a consensus of a real growth rate of approximately +3%. That’s a far better prospect than what’s unfolding across the Atlantic. Recent hard and soft European data would suggest a more muted and gradual recovery for the 17-member single currency bloc.

In Japan where Abenomics reigns, additional monetary easing, and stimulus from Abe’s third arrow (read: privately financed projects), should be capable of compensating the fiscal tightening (sales tax) Tokyo will initiate at the end of the first quarter in 2014. Japan is an export driven economy, a country that requires a weaker yen to further boost exports and economic growth. Critics of Abe’s three arrow policies are certainly wary of the fact that increasing the inflation rate to 2% may not necessarily increase consumption and economic activity. Even changes in the structure of Japan’s economy, do not necessarily mean that a lower currency may have the same effect on exports and growth. The short-yen trade has dominated many forex portfolios this past year. It has certainly been a trade of “patience,” a trade that’s expected to continue to dominate in the coming year.

Please read more in Global Currencies Forecast: 2014

WEEK AHEAD

* GBP Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* EUR Euro-Zone Consumer Price Index
* USD Consumer Price Index
* USD Federal Reserve FOMC Meeting Begins
* USD Federal Open Market Committee Rate Decision
* USD Fed’s Bernanke Holds Press Conference
* NZD Gross Domestic Product
* CAD Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell