Yen Week Ahead
Yen
The Bank of Japan is still looking for an opportunity to tighten monetary policy again as soon as an interest rate increase can be justified. There will be political constraints ahead of the July Upper-House elections with a potential rate hike in August. The yen will remain vulnerable on renewed interest in carry trades, but the underlying capital flows will offer support to the currency. There will continue to be the risk of a rapid yen correction stronger.
The Japanese yen strengthened significantly at times, but was unable to sustain the advances as there was fresh interest in high-yield currencies. The yen performance remained correlated with global stock market trends with lows near 122.0 against the dollar.
The Japanese unemployment rate fell to 3.8% in the latest month from 4.0% and the household spending data was firm with a 1.1% annual increase. The industrial data was, however, weaker than expected with a 0.1% decline over the month as exports to the US slowed.
The latest capital account data recorded a net surplus in the latest week with inflows at their strongest level for the month. There was still evidence of retail investment in overseas securities.
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