Monday, 31 May 2010

Japanese Political Turmoil to Weaken the Yen

The Yen dropped to its lowest level against the Dollar in more than a week. The Yen dropped about 70 pips vs. the Dollar and the USD/JPY pair has peaked at the 91.48 level. The Yen also saw a downtrend against the Euro and the Pound as well. Yet by the end of the day, the Yen managed to correct some of its losses.

The catalyst for the Yen's drop was a survey that showed that over half of Japan's citizens want Prime Minister Yukio Hatoyama to resign. This came after the Social Democratic Party left a three-way coalition government. The high-uncertainty within Japanese politics seems to have dented the currency's safe-haven appeal, and the Yen weakened as a result.

Looking ahead to tomorrow, the most interesting economic publication looks to be the Canadian Overnight Rate. The Overnight Rate is the Canadian Interest Rates announcement for June. Analysts have forecast that the Bank of Canada (BOC) will hike rates from 0.25% to 0.50%. If the BOC will indeed decide to hike rates, the CAD is likely to rise as a result. However, if the BOC will leave rates at 0.25%, this might put downward pressure on the CAD.