As widely expected, the Bank of Japan kept interest rates at 0.1 per cent earlier this week.

Over a two-day meeting which ended on Tuesday, the BOJ reached a unanimous vote to hold off on new measures to battle a stronger yen.

The BOJ would be under increasing pressure and may ease further if the yen soars towards an all-time high against the US dollar and threatens Japan’s fragile economic recovery.

Japanese Finance Minister Yoshihiko Noda declined to comment on an eventual intervention. He also said the recent market moves are somewhat one-sided, but that produced no market response. He furthermore warned that excessive currency moves were not good, while Economy Minister Satoshi Arai said on Tuesday the yen’s rise is not favourable for Japan’s economic recovery.

However Mr Arai, speaking to reporters after a Cabinet meeting, also said he does not expect the yen, now near a 15-year high versus the dollar, to remain on an uptrend for a long time. He also said the government’s relations with the Bank of Japan are at their best ever.

The US dollar dipped against the yen on Monday continuing its battering from late into the European trading session on Friday, slipping towards a 15-year low, following a disappointing US July payrolls report. The US economy shed 131,000 jobs in July, against an expected decline of 65,000, while private hiring rose by 71,000 versus 90,000. Immediately following the US Employment Report, the US dollar fell to 85.03 against the yen, close to an eight-month low of 84.81. A fall below this level would take the greenback to a 15-year low versus the Japanese currency.

The Japanese currency is up against its major rivals so far this year, as uncertainties in the market, together with debt concerns in Europe, have led to increased risk aversion which favour the yen. The first chart shows the yen’s performance versus its major rivals so far in 2010, while the second chart shows the “Carry Trades” performance in 2010.

Meanwhile, from Beijing, a leading government economist said on Monday that China’s economy will enjoy a strong, stable second half, putting it on course for full-year growth of about 10-11 per cent.

The forecast by Zhang Yutai, head of the Development Research Centre, is more bullish than those of many independent as well as some government economists, who have been revising down their predictions to the 9-10 per cent range.

Separately, Xia Bin, an academic adviser on the central bank’s monetary policy committee, pointed at where the government should look to ramp up its spending.

With Beijing not about to relax its crackdown on property speculation, it should put more money into affordable housing to pick up any slack, he said.

Upcoming FX Key events:
Today: Australia Unemployment Rate and Change, EZ Industrial Production.
Tomorrow: EZ GDP, US Advanced Retail Sales and US CPI.

FX Technical Key points:
EUR/USD is Neutral.
USD/JPY is Neutral.
GBP/USD is neutral.
USD/CHF is neutral.
AUD/USD is bullish, target 94.00, key reversal point 87.00.
NZD/USD is bullish, target 0.7800, key reversal point 0.7000.

RTFX Ltd (“RTFX”) is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only.

This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation.

They are thus subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication.

However, no warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employees.

www.rtfx.com

Mr Muscat is senior trader at RTFX Ltd.

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