Eye On The Yen

After dipping below the 89 level against the Dollar rumors over BoJ stimulus pushed the Dollar Yen trade above the 90 mark once again. Ahead of the Japanese GDP figures investors are betting Japanese growth will be revised downwards from the preliminary figure of 4.6% YoY published in February as capital expenditures, one of the biggest lagers of the Japanese economy is expected to grow less than previously expected. Although the Japanese economy is still expected grow above 4% for 2009 after the revision, the Japanese government is far from being pleased with the performance of the economy. The 4.6% growth in GDP comes after more than a 10% drop in 2008 alongside weak consumer spending and most importantly deflation. The deflationary pressures are currently one of the biggest concerns of Japanese policy makers as it risks the stability of the fragile recovery by pressing corporate profits down. The last CPI figure stud at -1.3% YoY for January  and with investors expecting a lower GDP figure FX players bet pressure from the Japanese government on the BoJ could lead to additional stimulus from the BoJ. The BoJ main channel of stimulus to the economy is to assist credit. The BoJ currently holds above 100 Billon Dollars of credit facilities to Banks. If the BoJ will decide to expand the program it will literally mean more money printing, for FX players more money printing means a lower Yen. Investors reacted rather quickly to the rumors on BoJ stimulus and crowded their bets on a lower Yen. The Japanese Yen depreciated the most against the high yielders with the GBP/JPY gaining around 400 pips in 3 days and the AUD/JPY gaining more than 250 pips. If however the BoJ for some reason will not act to expand credit and dovish figures will continue to stream in than Yen sellers might find themselves in choppy waters rather quickly.

GBP/JPY trade in recent days (hourly graph)