Business

Contours of the FX Market in the Week Ahead

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Candice writes for several publications, including The Christian Post, Red State, The Black Sphere and Patriot Update. She is the Science & Tech Editor at the Minority Report Blog and the founder and Editor-in-Chief at Front Lines. She's also the founder of Candice Lanier's Tech News and works as a computer consultant. Additionally, Candice is an antiques dealer.

MRFX

 

Zero Hedge – There are two main forces shaping exchange rates.  The first is the continued depreciation of the Japanese yen and the second is the appreciation of the euro.

The newly elected government in Japan is pursuing an aggressive stimulative policy to strengthen the economy and finally arrest deflation.  Many, however, doubt that the combination of new government spending and measures by the BOJ are sufficient in themselves to push inflation to even 1% this year.  Neither the BOJ nor the Abe government itself believes it, as reflected in their forecasts.

Japanese officials are encouraging the market to weaken the yen.  Yet previously Japanese officials have tried talking the yen down, but with little results.  What makes this time different?  Although the push back against Japanese official rhetoric appears to be widening, there is more to the yen’s weakness than official desires.

There are several other considerations.  Japan’s once-heralded trade surplus has swung into deficit. It exports are weak. Part of the weakness of Japan’s exports to China may be a reflection of the territorial dispute, but also Japan’s reliance on energy imports has intensified after the nuclear accident.  In addition, the recent CPI data indicates that the deflationary forces have hardly moderated.

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