Week in FX Asia – USD/JPY Touches Six Year High

• USD/JPY Rises to 6 year high
• Japan PM Reshuffles Cabinet
• Bank of Japan maintains positive economic view after meeting

The USD/JPY continued its upward trend even after the disappointing Non Farm Payrolls numbers did take a bit out of the USD on Friday. The decision by the European Central Bank to cut rates and introduce asset back securities purchases had more impact than the US employment figure coming in under expectations. The USD had a steady pace the whole week. The setback on Friday proved to be minor, although it has implications in how soon the Fed will raise interest rates which could further depreciate the JPY.

The week started for the USD/JPY at 104.20 and the dollar never looked back after the central Banks of Australia, Canada, England and Japan made no changes to their monetary policies. Europe continues to be caught in a deflationary spin and ECB President Draghi is running out of options. After announcing last month that they have selected BlackRock as their asset back securities consultants they announced that they will launch a program like QE, but without the sovereign implications.

The announcement boosted the USD across the board as the ECB provided action to their rhetoric of low rates for longer. The Bank of Japan did that last year in March, but has stuck to words rather than economic action since then. The sales tax needed to be higher if Japan wants to achieve fiscal health, but it puts the nascent economic recovery in jeopardy.

PM Shinzo Abe gets a do over in one of his more criticized moves after assuming the role. His cabinet had a far right leaning this of course did not help matters with China. Now Abe is replacing 12 of his 18 member cabinet with appointments to China friendly diplomats although the tension between the two countries will continue as Japan revisionist history minimizes the war crimes committed against China and Korea, now two of its most important trade partners.

Shinzo Abe’s main partner on the economic front continues to be Bank of Japan Governor Haruhiko Kuroda. The central banker continues to be optimistic about Abenomics’ inflation targets. The sales tax hike introduced in April has had a negative effect in the pace of the economy. It has gone from a transitory ailment, to something that could be more permanent, yet Kuroda is not convinced is here to stay and is onboard to keep to the schedule to increase again in December.

Next Week For Asia:

The week that ended focused heavily on the Western hemisphere. In particular central banks enjoyed a lot of attention and while the BoE issues no changes. The ECB started to cave in to the outside and inside European pressures building in the market.

Next week China will issue new loans figures. Given the rise of shadow banking in China, it is an important indicator on how the financial system matures in the Asian nation. Inflation and Producer Prices will be released as well.

The Reserve Bank of New Zealand will issue a rate decision. Having already hiked a couple of times it is unlikely that they will need to further adjust the benchmark rate. The current rate is expected to stay unmoved at 3.5%

The Bank of Japan will issue the minutes from its policy meeting. The sales tax impact has already been hinted by Kuroda, but the central bank remains steadfast in maintaining their positive assessment of the economy. The published minutes will not break with the previous speeches from Governor Kuroda.

After the roller coaster week that had a Russia-Ukraine escalation and ceasefire and the ECB finally announcing their asset backed securities program to try and get Europe back into growth territory next week’s schedule seems tame in comparison.

As someone who is starting to divide opinion on the global policy maker circuit Bank of England Governor has enjoyed both the title “rockstar” and “unreliable boyfriend” added to his resume. He will address the Trades Union Congress on September 9. Employment is the main indicator for the BoE and the Fed regarding raising rates, so the market will be paying attention to what Carney has to say in Liverpool.

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