The extraordinary momentum in USDJPY reached another milestone last week, pushing the dollar above 100 yen for the first time in four years. The driver for the yen’s weakness is monetary engineering, of course, courtesy of the Bank of Japan’s (BOJ) aggressive programme to juice growth. The better-than-expected news on the US economy, including the recent fall in jobless claims to five-year lows, has contributed to the the yen’s latest decline versus the greenback. “It’s the dollar that’s in demand because economic recovery in America is gathering steam,” Japan’s economic revitalisation minister noted last week. Recent numbers also revealed that Japanese investors have become net buyers of foreign bonds lately, news that put additional pressure on the yen.
But even powerful rallies face tests from time to time, starting with today’s update on wholesale prices (23:50 GMT). The BOJ’s primary goal is raising inflation to roughly 2 percent a year. The corporate goods price index report will show if domestic pricing is showing any response to monetary policy. So far, the evidence looks weak by this standard. In the March update, prices paid by producers continued falling, slipping 0.5 percent on a year-over-year basis versus a 0.1 percent fall for the year through February. If the March pace slips further, the news may inspire expectations that the BOJ will redouble its efforts to raise inflation in the weeks ahead.
SAXO BANK