USDJPY exchange rate volatility decreased in February with the currency pair trading in the 100.75 to 102.75 range since the beginning of the month, following a slump of five big figures in January. We remain bullish on the USD versus the JPY though, given the monetary policy divergence of the two countries' central banks. The BoJ hinted at further stimulus while the Fed is widely seen to continue its tapering efforts moderately but steadily. The chart tells us that USDJPY will hit some resistance in the Y103 to 103.5 range. Should the rate manage to break above that level, we see the USD moving towards Y105 again.
Bigger picture: The depreciation of the JPY can hardly be of benefit to China, which recently intervened in an attempt to signal market participants that it won't accept the CNY to go in one direction only. You should expect more two-way volatility for CNY exchange rates from now on. If Japan will continue to devalue the JPY in one way or the other, China and other Asian countries will be tempted to do the same with their currencies so as not to put their exporting businesses at a disadvantage. This may well culminate in a currency war in Asia and a deepening of the conflict between China and Japan. If you have exposure to Chinese or Japanese assets and currencies, do not lose sight of this particular risk. We see plenty of potential for disputes that may ultimately bring a new round of war rhetoric in the second quarter of 2014.
GBP/USD has moved 40 pips up over the past 30 minutes or so, despite no real news in the market, and currently trades at $1.5365. Perhaps cable is anticipating weak US employment data. Initial jobless claims are due to be released in the United States in about four hours. According to a survey, the market expects new jobless claims of 365,000, and deviations from this number may well push cable and other US dollar crosses in either direction. EUR/USD also advanced, but not quite as abruptly as cable. It trades at $1.3089, roughly 0.15 percent above last night's rate. Also signalling a weaker dollar, USD/JPY declined from its ¥99.88 high to its current level of ¥99.58, once again failing to hit ¥100.
If the still ongoing moves of these three currency crosses were to serve as an indicator, I would say US employment data will again be disappointing. This would make it more likely that the Fed will continue its bond purchases at the current extent for at least another quarter. We'll know more in a few hours. Until then, beggars!
Currency investors who want to trade the JPY depreciation should perhaps do so using either GBP/JPY or EUR/JPY instead of USD/JPY in order to avoid direct exposure to today's US jobs data. GBP/JPY is currently at ¥153.07, only a few pips away from the new high set earlier today.
The Japanese currency gained back some of its losses against the dollar today after comments by Bank of Japan governor Haruhiko Kuroda saying the BoJ had taken all necessary steps to achieve the two-percent inflation target. Perhaps in response to yesterday's comments from Abe adviser Koichi Hamada about the BoJ theoretically being able to undertake further easing and implying a ¥100 FX rate target against the dollar, Kuroda put things back into perspective. He said he was going to reassure the G20 at next week's meeting in Washington that the BoJ was not targeting exchange rates, responding to criticism of competitive devaluations of the Japanese currency and concerns over a currency war looming in Asia. According to Mr Kuroda, the monetary stimulus was aimed exclusively at beating deflation. However, while Mr Kuroda reaffirmed that the BoJ was going to keep the asset purchases going for two years, he also said the central bank would theoretically be able to maintain an easing policy for longer, if necessary.
Following his remarks, USD/JPY quickly slipped 50 pips from its Wednesday high and currently trades around the ¥99 level.
In an interview with Reuters, Koichi Hamada, a retired Yale University professor and since December 2012 one of Japan PM Shinzo Abe's advisers, said the Japanese yen was appropriately valued against the US dollar at levels around ¥100. Mr Hamada had already voiced this opinion in March, despite the Japanese government having asked him at the time to stay clear of such public announcements. He further told Reuters that the Bank of Japan had a lot of room for further easing, if necessary. It is hard to imagine that Mr Hamada made these remarks on behalf of the BoJ's Mr Kuroda or prime minister Mr Abe, both of whom would certainly want to avoid further exchange rate targeting for the time being, as official hints at more future interventions could draw Japan deeper into "beggar thy neighbour" arguments with its Asian trade partners. Be that as it may, currency traders took notice of Mr Hamada's comments and interpreted the USD/JPY rate of ¥100 as a temporary ceiling. As of this writing, USD/JPY is trading at ¥99.2, roughly 0.2 percent below yesterday's level after profit-taking.
Moving to Europe and the United States, both EUR/USD and GBP/USD advanced further. EUR/USD is currently at $1.3091 (+0.65%) and cable trades at $1.5332 (+0.5%), after stronger than expected UK industrial and manufacturing production numbers and Federal Reserve chairman Ben Bernanke's signals from last night that the Fed was unlikely to quit its asset purchases anytime soon.
Trading has been relatively quiet in foreign exchange so far today. EUR/USD currently trades at $1.3027, almost unchanged from Friday and protecting its gains from the second half of last week. The euro's appreciation against the US dollar has not been due to positive news out of Europe but the rally was rather triggered by several negative economic statistics having been released in the United States, which may be why the markets are currently waiting for new information to process as the euro remains close to the $1.30 level.
Expectedly, USD/JPY continued its upward move after last week's BoJ announcement of doubled QE efforts. The currency pair trades at ¥98.64, roughly 0.8 percent above Friday's level. Tokyo stocks were also greatly supported by the central bank's actions, trading 2.8 percent higher at 13,193 points at the moment -- not far from the stock average's five-year high.
There were no sudden jumps in GBP/USD, either. Cable is at $1.5317, slightly below Friday rates. Fed chairman Ben Bernanke's speech this evening might push the pair in either direction, but I wouldn't expect too much from him today. Currency traders should look out for the change in UK industrial production tomorrow as well as several key US releases from Wednesday onward.