Daily Forex Outlook: Yen (JPY) Rebounds as BOJ Holds Stimulus Fire

on Nov 20, 2012

On November 20, the Bank of Japan refrained from further monetary easing, with the decision sending the yen rallying from a seven-month low. And while the yen is off to a good start on Tuesday, the single currency, which had advanced on Greek deal hopes on Monday, lost ground following the cut of France’s top investor rating by Moody’s (NYSE:MCO).

**Yen Up as BOJ Refrains from Easing**
Bloomberg reports that the yen advanced against most of its 16 major peers with the Bank of Japan keeping policy unchanged. Following the BOJ decision, the yen gained 0.2 percent to 81.28 per dollar and 0.4 percent to 103.94 per euro. “The markets are pausing for breath in dollar-yen after a run up in the last couple of weeks,” notes Greg Gibbs, senior currency strategist at Royal Bank of Scotland Group (LON:RBS), as quoted by Bloomberg. “They’re now thinking about the election, who’s likely to win it and what form the next government would take.”

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With the December election expected to bring victory to the Liberal Democratic Party and its leader Shinzo Abe, a vocal proponent of monetary easing, analysts see the yen as losing ground versus the greenback. Reuters, however, quotes Todd Elmer, currency strategist at Citi, as noting that it is prudent to be cautious about selling the yen solely on the basis of BOJ easing expectations. “Ultimately, the yen is not strong because policy is especially tight in Japan, it’s strong because policy is exceptionally easy elsewhere,” points out Mr Elmer.

**Euro Suffers from France’s Credit Rating Downgrade**
Although the most anticipated event of Tuesday as regards the single currency is the meeting of the Eurozone finance ministers, the decision of Moody’s to cut France’s top credit rating weighed on the euro, which fell 0.3 percent to $1.2782, as reported by Bloomberg. “The euro is being sold on the back of France’s downgrade,” notes Marito Ueda, senior managing director at FX Prime Corp, as quoted by Bloomberg. “The news was somewhat expected, so it’s unlikely the euro will tumble, but it would certainly keep it under downward pressure while the market looks for where the next downgrade would be.”

**Loonie, Aussie Benefit from IMF Reserve Currency Consideration**
!m[Euro (EUR) Off To A Bad Start With France Credit Rating Downgrade ](/uploads/story/852/thumbs/pic1_inline.png)The Canadian and the Australian dollar received a boost from the International Monetary Fund (IMF), with the organisation indicating that it was considering classifying the Canadian dollar and its Australian counterpart as reserve currencies. Bloomberg reports that as a result of the IMF consideration, the Canadian dollar advanced 0.6 percent against its US counterpart, the highest since October 17. “We saw the Canadian dollar spike and I would say that the IMF news is a pretty good catalyst,” noted Jack Spitz, managing director of foreign exchange at National Bank of Canada (TSE:NA), as quoted by Bloomberg. “More and more central banks are adopting a diversified approach, especially with what’s gone on in Europe and the United States. It’s another positive story on holding Canada and commodity currencies.”

The Aussie for its part maintained a Monday gain staying at $1.0413, after climbing 0.7 percent to $1.0412 on November 19. Australia’s currency also benefitted from the country’s top credit rating following France’s downgrade. “There’s more money looking at places like Australia because of the secure AAA rating,” points out Ray Attrill from National Australia Bank Ltd (ASX:NAB), as quoted by Bloomberg. “The next one big figure on the Aussie will probably be determined by whether they do cut rates or don’t cut rates in December.” While the Reserve Bank of Australia left its cash rate at 3.25 percent on November 6, minutes from the policy meeting published November 20 showed that some members considered further easing as “appropriate in the period ahead.”


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