The Yen is presumed to maintain its losses alongside the Australian dollar to begin the week after global financial leaders gathered in Moscow played down fears of a currency war and signaled they would not interfere in Japan’s plans to boost its economy. In essence, Japan escaped direct criticism for its aggressive steps to loosen monetary policy that have driven a dramatic sell-off in the Yen.
The message was delivered at weekend talks of finance ministers and central bankers from the Group of 20 nations in Moscow. While they vowed not to target exchange rates for competitive purposes, Japan was not singled out for allowing the Yen to drop, which effectively secured backing for its push to combat deflation. Officials said they regarded Japan’s loosening of policy as a domestic economic policy and not an attempt to target the exchange rate. The G20’s harder stance on exchange rates came after the Yen’s 7 percent slide against the US dollar this year raised concerns Japan is starting a currency war, in which countries seek to protect exports through a devaluation of its currency. The agreement effectively leaves Japan free to ramp up its efforts to revive its economy while putting pressure on officials to avoid explicitly targeting a cheaper Yen. Likewise, analysts say the agreement likely suggests that the Yen will continue depreciating in the near term.
In a television interview, Japanese Finance Minister Taro Aso defended the nation’s policies, saying that their main objective is to emerge from the recession and deflation. Aso also remarked that a rebound in Japan would have a positive impact on the global economy. For his part, Bank of Japan Governor Masaaki Shirakawa reiterated the central bank’s goal of achieving a “robust economy through stable prices.” The G20 statement is, according to him, in the same spirit of the BOJ’s monetary policy. With Japan getting the green light for further policy measures, market focus will now likely be on Prime Minister Shinzo Abe’s nominee for the next BOJ governor, which is expected to be announced in the coming days. Experts say former top financial bureaucrat Toshiro Muto is the leading candidate, and he is expected to intensify efforts to revive the economy. Considering these, a long position is advised for the AUD/JPY trades today.
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