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Japanese Yen on the Defensive as Traders Test BOJ Resolve
Following Monday's joint intervention by the G7, the Japanese yen appears to be on the defensive against unwanted volatility. The Bank of Japan's (BOJ) policy at the moment appears to be controlling volatile price swings, but not direction. While the massive spike in yen values appears harmful to Japan's economic recovery, it also grants the country stronger buying power in a time when it desperately needs to import reconstruction supplies and aid.
The boost to the yen's buying power makes their earthquake and tsunami rebuilding efforts more affordable. This means the BOJ may not necessarily favor weakening the yen at the moment, but controlling for its volatility instead.
Many traders are expecting a technical buy-in on the yen as this anticipated inaction by the BOJ to control direction allows traders to capitalize on numerous issues which favor yen-buying. These factors include geopolitical instability, unwinding carry trades, risk aversion, and low liquidity given Japan's absence from today's market as the nation celebrates Vernal Equinox Day. Additional yen strengthening should be expected this week as a result.
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