The Japanese yen retreated today after the two-day rally on speculations that the government will convince the Bank of Japan to double the inflation target, adding to the pressure on the currency.
BoJ Governor Masaaki Shirakawa said that the central bank works in close contact with the government. Prime Minister Shinzo Abe was already calling for increasing the inflation target and more aggressive monetary policy for some time. Indeed, the bank mentioned aggressive policy during the last meeting, when it expanded its asset purchase program, yet did not change the target. It is widely expected that the bank review the target on the next meeting.
Previously, the yen was rising as traders have thought that all the bad news was priced in. It is obvious now that they were wrong and the Japanese currency has the room to fall further.
USD/JPY rose from 87.03 to 88.03 as of 23:52 GMT today. EUR/JPY advanced from 113.83 to 114.91 and GBP/JPY climbed from 139.73 to 140.94.
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