Japan’s Finance Minister Taro Aso overnight said that JPY was weakening too fast and that sudden moves in the exchange rate are not welcome, regardless of the direction.
This looks like a public relations manoeuvre aimed at making Japan look prudent in the eyes of the international community rather than anything to take particularly seriously. USDJPY sold off to just below 117.50 before stabilising.
Chart: USDJPY
Finance minister Aso warned on the size of the JPY move overnight and it’s a three-day weekend in Japan, so the rest of today could prove an interesting test of market sentiment.
I expect the pair will be quickly scooped up at some point, but there is some risk that a near-term consolidation cuts more deeply than expected. Below overnight lows, the focus may be on the 117.00 former highs, while a strong recovery back above 118.25 suggests the downside risks have been averted for now. 
The SNB’s Fritz Zurbruegg yesterday underlined the SNB’s determination to maintain the CHF ceiling. He also mentioned the idea of negative rates and that these would have more impact on CHF than the ECB’s negative rates policy because of the “permanent excess liquidity” in Switzerland.
Additionally, the latest polls suggest the “Save our Swiss Gold” initiative has little chance of passing, though there is some controversy on the quality of the polls.
Net-net, this was worth about 10 pips of upside in EURCHF… the market wants SNB action – especially on rates – before it will believe that EURCHF can stray significantly above 1.2000 again.
Was the intervention of finance minister Taro Aso on the USDJPY just a public
relations exercise or will the Japanese see their currency strengthen? Photo: Thinkstock
Looking ahead
After yesterday’s stronger-than-expected US October CPI numbers and the highest US Philly Fed survey since late 1993, one might have expected a stronger response from the USD, especially given the weak flash PMI readings for Europe, but EURUSD stuck to a tiny range, largely refusing to budge.
Some of this likely reflected the focus on nervous USDJPY activity. There was also a rather weak November Markit US Manufacturing PMI reading, though this normally doesn’t grab the market’s attention.
Still, the forward view on Fed rate hikes has entirely failed to budge in recent days and perhaps the market prefers to focus on what the Fed’s William Dudley said recently, that the Fed might prefer to let the US economy “run a little hot” before moving on policy, with the assumption that the risk of moving too late is far less than the risks from moving too soon.
The lack of momentum erodes all confidence in EURUSD’s nearest-term direction, and next week provides only a few event risks of note. For Europe, the highlights are the German November IFO reading on Monday and then the first estimate of Eurozone CPI on Friday.
For the USD, it’s slimmer pickings, as it’s a holiday week, with most of the nation off work for the Thanksgiving holiday on Thursday and Friday. The highlights on the economic calendar include the GDP revision on Tuesday and the PCE inflation figures – supposedly the Fed’s favourite and a bit lower than the CPI prints of late – up on Wednesday. The following week will be more critical, with an ECB meeting and the latest US payrolls and other figures.
On today’s calendar, we only have Canada’s CPI to entertain us, though the ECB’s Jens Weidmann is out speaking and may have some cold water to throw on ECB’s government bond buying potential, though it seems the market largely ignores his comments.
Upcoming economic calendar highlights (all times GMT)
- Eurozone ECB’s Nouy, Weidmann to Speak (1015)
- Canada Oct. CPI (1330)
- US Fed’s Tarullo To Speak (1430)
- US Nov. Kansas City Fed Manufacturing Activity (1600)
- UK BoE’s Miles to Speak (1945)
- Switzerland SNB’s Jordan to Speak (Sun 1300)
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