Japanese Yen Sinks as G20 Leaves Door Open for BOJ Stimulus

The Japanese Yen faces heavy pressure after the weekend’s G20 summit left the door open for the Bank of Japan to press on with aggressive stimulus measures.

Talking Points

Japanese Yen Sinks as G20 Outcome Allows BOJ to Continue Stimulus
EU President’s Comments May Spark Risk Aversion on Budget Uncertainty

The Japanese Yen traded broadly lower against its major counterparts overnight in the wake of the weekend’s G20 summit. The group issued a communiqué that didn’t single out Japan for its efforts to bring down the currency, saying only that “monetary policy should be directed toward domestic price stability and continuing to support economic recovery”. Commenting specifically on currencies, policymakers said, “We will refrain from competitive devaluation [and] will not target our exchange rates for competitive purposes.”

On balance, the G20 seemed to focus the intent of policy actions rather than their outcomes. Within this framework, officials appeared to be saying that it is acceptable for currencies to depreciate as a by-product of domestically geared monetary policy actions. By contrast, what would be unacceptable is a targeted devaluation of a currency as a stated policy objective itself. In practical terms, this means the Bank of Japan can continue to battle deflation with as accommodative a posture as it sees fit, provided the usual roundup of officials does not take to the wires to suggest out loud that a particular exchange rate is desirable.

The economic calendar is quiet in European hours and US markets are closed in observance of the President’s Day holiday. This suggests trading volumes are likely to register on the thin side, allowing current momentum to coast onward relatively undisturbed.EU President Herman Van Rompuyis scheduled to speak to the EU Parliament about the regional bloc’s budget, whose ratification is critical to secure funding for on-going bailout programs. Signs of sluggish progress may trim Yen losses as risk aversion rears its head.

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