FXEmpire | February 6 2013 2:09 EST
The Japanese yen continues to decline this morning, setting annual records. The USD/JPY is trading at 93.87 headed to break above 94.00 during the European session. The EUR/JPY is trading at 1.2750 as it continues to climb adding 32pips so far today. The sharp tumble was kicked off with the announcement that the Bank of Japan Gov. Masaaki Shirakawa would step down three weeks before his term ends on April 8 in order to coincide with the departure of his two deputies. Shirakawas decision to leave at the same time as his deputy governors suggests that the Japanese government is close to announcing a successor, who will undoubtedly reinforce the central banks dovish message. Also Shirakawa is showing his outrage of government intrusion and threats against the independence of the central bank. The announcement fueled expectations that he may be replaced by someone who prefers more aggressive easing to pull Japan from an era of falling prices.
The yen headed towards a three-year low against the U.S. dollar on Wednesday as expectations that Japan will pursue more aggressive policies to end deflation sparked a wave of selling in the currency.
During his recent campaign newly elected Prime Minister Abe said that he would do whatever it takes to jumpstart the Japanese economy that has been stuck in deflation for a very long time. Many view his aggressive policies over the top, because he is not giving a moment to review the results of his actions. Economists believe that monetary stimulus continually needs to be adjusted as its effects and outcome are not always the same. A plan of unlimited stimulus is pushing the stock exchange to record levels while the drop in the value of the yen is helping exports move to profits while importers are hurting and prices are increasing on the domestic side.
The revised budget, which includes huge infrastructure projects will help increase jobs and the economic situation but these project will take months of not years to get off the drawing boards.
Mazda Motor Corp., the best performer on the Nikkei 225 Stock Average in the past three months, more than doubled its full-year profit forecast on a weaker yen and demand for its fuel-efficient vehicles. The yen has weakened about 14% versus the dollar the past three months, the biggest decline among 10 developed- nation currencies tracked by Bloomberg. Mazda revised its outlook for the yen against the dollar to 81 from 80, and 104 from 100 versus the euro.
BoJ member Takehiro Sato said this morning that the central bank is not seeking to directly weaken the yen to a specific level. “By easing monetary policy through increased asset purchases … the central bank is aiming to lower interest rates and make the yen less attractive as a safe-haven currency,” Sato said in a news conference. Many European leaders are saying that the Japanese government is forcing a currency war. Angela Merkel warned the Japanese leaders recently at the Davos Economic Forum that intentional weakening of the JPY would not be tolerated.
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