Forexpros – The U.S. dollar ended the week higher against the yen on Friday, after an intervention by Switzerland’s central bank to curb the francs gains sparked concerns that safe haven inflows could shift to the yen, adding to pressure on Japanese officials to weaken the currency.
USD/JPY hit 77.85 on Friday, the pair’s highest since August 9; the pair subsequently consolidated at 77.58 by close of trade on Friday, gaining 0.88% over the week.
The pair is likely to find support at 77.04, Wednesday’s low and short-term resistance at 77.85, Friday’s high.
The yen weakened broadly on Tuesday after the Swiss National Bank set a minimum exchange rate target of 1.20 per euro for the Swiss franc, saying the massive overvaluation of the currency posed an acute threat to the Swiss economy and carried a risk of deflation.
Following the move, Japanese officials dismissed speculation that Japan would follow Switzerland’s intervention in currency markets, saying “Japan must not provoke a currency war by itself.”
Speaking at the conclusion of the G7 meetings on Saturday, Japanese Finance Minister Jun Azumi said his counterparts had not objected to his pledge to take “bold actions” to curb the appreciation of the yen.
“We will continue to closely monitor developments and we will take bold actions, especially against speculative trading,” Azumi said. I think I gained an understanding of our stance on foreign-exchange rates.”
On Wednesday, the Bank of Japan kept its benchmark interest rate unchanged at 0.1%, in a widely expected decision and announced no new monetary easing measures.
The central bank said that Japan’s economy should resume a moderate recovery later this year but data on Friday showed that Japan’s economy contracted more than previously believed in the second quarter.
The Cabinet Office said revised gross domestic product contracted at an annual pace of 2.1% in the three months to June, from the previous quarter, more than the 1.3% contraction announced three weeks ago.
Meanwhile, the greenback was lifted after U.S. President Barack Obama outlined a USD447 billion package of tax cuts on Thursday, which he said would “jolt” the U.S. economy back into growth.
Elsewhere, the euro tumbled to a 10-year low against the yen on Friday, amid mounting concerns over a possible Greek default and after the shock resignation of a top European Central Bank policymaker.
In the week ahead, markets will be focusing on developments in the euro zone and the outcome of the weekend meeting of G7 leaders. Investors will also be watching the release of U.S. data on inflation and manufacturing to gauge the strength of the U.S. recovery.
Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.
Monday, September 12
Japan is to publish official data on manufacturing activity and tertiary industry activity, leading indicators of economic health. Meanwhile, the BoJ is to publish the minutes of its most recent monetary policy meeting.
In the U.S., Federal Reserve Bank of Dallas President Richard Fisher is to speak; his comments will be closely watched for clues to the future direction of monetary policy.
Tuesday, September 13
The U.S. is to release official data on import prices, an important inflationary indicator, as well as data on the federal budget balance.
Wednesday, September 14
In the U.S., Treasury Secretary Timothy Geithner is to speak; his comments will be closely watched by investors. In addition, the U.S. is to release government data on producer price inflation, crude oil stockpiles, business inventories and retail sales, the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
Japan is to publish revised data on industrial production.
Thursday, September 15
The U.S. is to publish a string of data, with government reports on consumer price inflation and the nation’s current account, as well as the weekly report on initial jobless claims. The country is also to publish official data on manufacturing activity in New York and Philadelphia in addition to reports on industrial production and the capacity utilization rate.
Friday, September 16
The U.S. is to round up the week with official data on the balance of domestic and foreign investment in U.S. Treasuries, while the University of Michigan is to release preliminary data on consumer sentiment and inflation expectations.
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