Yen Sags as G20 OK with Japan Reflation Effort
The yen started a fresh week on the backfoot after Japan escaped direct criticism from its G20 peers on its aggressive reflationary plans that have weakened the currency and raised international complaints of competitive advantage.
The G20 declined to single out Tokyo but committed to refrain from competitive devaluations and said monetary policy would be directed only at price stability and growth. Japan said this has given it a green light to pursue its policies unchecked.
Traders also said this means the market will happily continue selling the yen.
(Read More: Japan Finance Minister Relieved G-20 Heat Is Off)
The dollar rose to 93.90 yen, having bounced smartly from a low near 92.20 on Friday. It is within reach of a 33-month peak around 94.47 set a week ago. The euro is at 125.35, also not far from a 34-month high of 127.71 reached early this month.
Yen bears had turned cautious last week, worried Japan would be openly criticized for allowing the yen to weaken. In the week ended Feb. 12, currency speculators cut bets against the yen, although they remained bearish on the currency.
“A lightly more nuanced tone in the G20 communique should reassure Japanese policymakers and the market by removing the risk of Japan being labelled as a currency manipulator,” analysts at Barclays Capital wrote in a client note.
(Read More: Did the G-20 Just Signal Further Global Easing?)
They said the yen’s medium-term downward trend is intact and maintained their 12-month forecast of 100 for dollar/yen.
The market’s focus is now on Prime Minister Shinzo Abe’s nominee for the next Bank of Japan governor. Abe is expected to announce his choice in coming days.
Sources told Reuters that former top financial bureaucrat Toshiro Muto is leading the field of candidates to become the next central bank governor. It is expected that he would intensify stimulus efforts to reflate the economy.
Also notable was sterling, which squeezed higher across the board as some investors closed bearish positions even after a Bank of England policymaker said the currency may need to weaken further to rebalance Britain’s economy.