USD Slips Against Yen And Euro

The Bank of Japan (BOJ) did not intervene in the volatile bond market and kept monetary policy steady at yesterday’s meeting. The decision strengthened the Yen. The USD/JPY is trading at 98.42 EUR/USD, starting the week at 1.3193 and climbing 80 points to 1.3272. The dollar, which last month hit a 4-1/2-year peak against the Yen of 103.74, has since fallen.

Asian stocks sagged to a fresh 2013 low due to the Chinese growth worries, and continued uncertainty over U.S. monetary easing and bond buying program. The Nikkei N225 ended 0.7 % down, while USD/JPY declined 0.4 %. The South Pacific MSCI-index shed 0.9 % and fell for the fifth day in a row. In New York, the Dow Jones ended slightly down at 15. 238. The Nasdaq was in positive territory, 0.13 % after a 1.71 % gain for Intel, which was the winner of the day.

The international rating agency, Standard & Poor’s, raised the U.S. economic outlook to stable from negative, from the positive jobs data presented last Friday. The upgrade will contribute towards keeping the speculation about an eventual softening of FED’s strong commitment to quantitative easing alive. Both global equity and commodity markets have recently been jolted by FED stimulus concerns, slowing growth in China, the continued recession in Europe and the big turbulence in the Japanese stock and bond markets.

This volatility clearly demonstrates the weaknesses of monetary easing. It boosts liquidity and exacerbates moves in the financial markets without having a real impact on the actual economy. Abenomics led to a strong stock rally, and a steep fall in the Yen. Over the last two weeks, theNikkei lost 20 % and theUSD/JPY is up 5 % . Most analytics continue to be bullish on the USD, stressing that long-term capital flows are moving into U.S. corporate bonds. This will eventually strengthen the USD.