Wednesday, January 30, 2013

Yen Down As Stocks Up, Dollar Weakest In A Year

The Yen declined against most of its major peers as Asian stocks rose again today and on expectations that Japan will expand monetary stimulus.

The Bank of Japan (BOJ) could maintain a more dovish policy for longer and this together with a rise of the MSCI Asia Pacific Index (MXAP) by 0.7% earlier today, is underpinning Yen weakness.

In fact, the Yen is poised for a 4.6% drop versus the Dollar in January.

Earlier in the month, the BOJ doubled its inflation target to 2% and had also agreed to open-ended asset purchases set to start in 2014.

I foresee that the Yen will still weaken further in the medium term.

Earlier today the Yen dropped 0.2% to 90.90 per Dollar and lost 0.2% to 122.68 per Euro. The Dollar traded at $1.3491 to the Euro.

The Dollar was near to its weakest level in over a year versus the Euro, ahead of data that is expected to show that U.S. job gains and growth have slowed.

The Federal Open Market Committee is set to release its policy statement today and are expected to show that the nation's gross domestic product gained at its weakest rate, 1.1%, for the three months through December, since the first quarter of 2011.

Federal Reserve officials will finalise policy today, following minutes of their December meeting that showed that participants were evenly divided between those advocating that it would be appropriate to end its third round of asset purchases, QW 3, around mid-2013 and those who want the purchases to continue beyond that.

Expectations are that data will show that companies added 165,000 jobs in January, 50,000 less than in December.

So while it's clear that the U.S. economy continues to show signs of weakness, current perceptions are set to keep the Dollar under pressure.