Japanese Yen Moves Off Recent Lows As Traders Book Profits

The Japanese Yen recouped losses incurred last week as it moved away from a recently hit 2-1/2 year low versus the US Dollar during trading on Monday.

The move was brought about by traders looking to take profit just in case easing measures expected from the Bank of Japan meeting falls short of market expectations.

The Yen's expected to remain steady, that is until the Bank of Japan's policy decisions are released after the 2-day meeting comes to an end on Tuesday.

 

The Yen has really felt the pressure during the past month, having lost 5.9% to the Dollar. Speculation that the BOJ, which is under pressure from new Prime Minister Shinzo Abe's government, is to boost stimulus in an effort to pull the economy out of its third recession since 2008, has seen the Yen take a beating recently.

 

Most economists do expect that the BOJ will expand its asset purchases by as much as 10 trillion Yen ($112 billion). Abe has recently called for such a spending package and he wants the central bank to double it's 1% target to 2%, in order that consumer price gains can counter entrenched deflation.

Technical indicators are suggesting that the Yen's decline may have been overdone.

For instance, the Yen's 14 day relative strength index to the Dollar on Friday stood at 26. Traders use the 30 level as a signal that an asset's price has fallen too far, or too fast, and could reverse course when below that level. As against the Euro, it stood at 29.

While a correction is anticipated, I still expect that the mid to long term trend may have shifted to its weakness.

 

International events are playing their part also, with Chinese ships having entered Japanese territorial waters near disputed islands today. Japan purchased the uninhabited islands, known as Senkaku, late in 2012 and this has resulted in the disruption of more than $300 billion worth of trade between these two countries.

The Yen had risen by 0.5% to 89.61 per Dollar earlier today, off its weakest level since June 2010. The Yen gained 0.5% to 119.37 per Euro.

The Dollar remained little changed since the Friday close, at $1.3323 per Euro.

In the U.S. reports are due out, which could show that gains in U.S. home sales have risen.

Sales of existing homes have likely climbed by 1.2% to a 5.1 million annual rate last month. This would be the strongest figure since November 2009. The National Association of Realtors is due to publish the stats on Tuesday.

Yet another report, due out later in the week, could show that new home sales have picked up to a 385,000 annual pace this month, and if so, that would represent the best showing in almost 3 years.

Tuesday will see the release of a report by the ZEW Centre for European Economic Research in Germany. The gauge aims to predict economic developments 6 months in advance and is expected to have risen to 12 in January from 6.9 in December. This would then be its strongest level since April 2012.

For many analysts, it appears that the Eurozone economic downturn could be close to bottoming out, as signs of stabilization in Euro area data start to emerge. It follows then, that we could see the EUR/USD rise in the months to come.