The G-20 meetings ended with a very mild statement regarding Japan. This was expected, and enabled USD/JPY to recover after falling earlier.
And now that the meetings are over, can USD/JPY gain an extra digit? The weakness of the yen also impacts EUR/USD.
Here is the “strongest” part of the G-20 statement:
We will be mindful of unintended negative side effects stemming from extended periods of monetary easing.
Being mindful of unintended side effects doesn’t go too far in putting the blame on Japan. In addition, Japan is certainly no the only country that is busy in “extended periods of monetary easing”. The US and the UK maintain big QE programs. Switzerland (not part of the G-20) pegs its currency and China, the world’s No. 2 economy, has very limited currency flexibility.
The European Central Bank has a low interest rate and launched the LTRO program. Also other central banks which don’t have QE programs, have low interest rates and say that their monetary policy is accommodative.
So, the statement could also be interpreted as a global warning about inflation risks rather than even the slightest finger pointing at Japan.
USD/JPY which already fell below 96 earlier in the week, saw a gradual climb with a strong finish. At 99.51, the 100 line is within reach once again. The line proved to be a multiple top beforehand, but now that the G-20 meetings are over, an assault on this line will not be surprising.
The actions of the BOJ and the weakness of the yen (which go hand in hand) push flows out of Japan. One of the destinations is Europe. These flows (or expectations of) helped EUR/USD climb higher.
EUR/USD fell on talk of a rate cut – monetary easing from the old continent. Will the ECB put up a fight? Central bank actions certainly caused big moves in currencies, and more will come.
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