Japanese Yen Increasingly Volatile Ahead of BOJ Rate Decision

Japanese Yen Increasingly Volatile Ahead of BOJ Rate Decision
The Japanese yen saw a surge in volatility on Wednesday, as the currency rocketed higher across the majors during the morning to touch record highs versus the British pound, 13-year highs against the US dollar and Canadian dollar, and 6-year highs versus the euro. However, the yen reversed course throughout the afternoon, and by the end of the day the yen was down nearly 2 percent against the New Zealand dollar and Australian dollar and slipped roughly 0.50 percent versus the euro and Canadian dollar. The move in the Japanese yen crosses corresponded with a 3.5 percent rally in the Dow Jones Industrial Average and a decline in the ultimate safe-haven asset: Treasuries.

Overnight, the Bank of Japan (BOJ) is forecasted to leave rates unchanged at the conclusion of their policy meeting, but with interest rates already at an ultra-low 0.10 percent, there isn't much room to make monetary policy more accommodative without going back to zero-interest rate policy (ZIRP) anyway. Thus, it will be important to gauge comments by BOJ Governor Masaaki Shirakawa and to look at the BOJ's Monthly Report on January 23 at 0:00 ET, but the outlook doesn't look good. Indeed, Japan's Cabinet Office issued an assessment of the economy during the month of January last night, and indicated that conditions were "worsening rapidly" as exports and industrial output plunge, corporate profits fall "substantially," business investment declines, the employment situation deteriorates "rapidly," and private consumption takes on a "weak tone." Mr. Shirakawa's comments on the economy ultimately may not have a huge impact on the Japanese yen, but it will be very important to look for comments regarding the currency, as the use of verbal intervention could push the yen even lower.

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