The dollar added to overnight losses against the European majors and failed to reach new highs against the yen in Tokyo this morning. The yen recovered somewhat against the majors with the euro and sterling coming off 3-year highs of 122.30 and 194.95 respectively. USD/JPY also eased off its multi-month high of 124.30 and is now retracing back towards the 124-handle. Supporting the yen this morning was stabilization in asset prices after yesterday's selloff in stocks and weak demand for bonds.
But the yen should remain pressured by uncertainty over Japanese policy in the near term. BoJ Governor Masaru Hayami expressed caution about further monetary easing ahead of its policy board meeting this week and reiterated that they are already injecting ample funds into the money market. On Monday there was disagreement over Hayami's statement that he had not spoken with the FSA minister about inflation targeting. Yet according to the Asahi Shimbun, Takenaka urged the BoJ to introduce inflation targeting in his meeting with BoJ Governor Masaru Hayami last Thursday. Takenaka seems to be concerned that deflationary pressure will rise even further following the anticipated increase in corporate bankruptcies due to the government's proposed bad loan disposal policies.
Japan's MoF said on today that Japan's economy is still mired in harsh conditions, although there are signs of improvement such as a recovery in corporate profits. The MoF said capital spending throughout the country was falling, and employment conditions remained severe as bankruptcies and debts were on the rise. Also adding that manufacturers' output was picking up and corporate profits for the fiscal year to next March looked better than a year earlier.//www.forexnews.com