Yen Broadly Lower After G20, USD/JPY Edges Closer To 100

As the week started, the Yen weakened broadly in reaction to the G20 meeting. The BoJ governor commented that "winning international understanding gives me more confidence to conduct monetary policy appropriately." He pledged to continue the "qualitative and quantitative easing for the next two years." The G20 statement acknowledged that "Japan's recent policy actions are intended to stop deflation and support domestic demand." The USD/JPY is heading back close to the 100 psychological, but we'd be cautious on pull back from that level.

G20 leaders also noted that global recovery "remains uneven and is progressing at different speeds" and pledged further actions to "raise growth and create jobs". Regarding currency markets, they reiterated that pledge to "refrain from competitive devaluation" and "all form of protectionism". And, "monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates of central banks". It warned of "unintended negative side effects stemming from extended periods of monetary easing."

The British pound opened the week a bit weaker against the euro. Last week, Fitch downgraded the U.K.'s credit rating to AA+ from AAA with a stable outlook. Fitch noted that "despite the U.K.'s strong fiscal financing flexibility underpinned by its own currency with reserve-currency status and the long average maturity of public debt, the fiscal space to absorb further adverse economic and financial shocks is no longer consistent with an AAA rating". Nonetheless, Fitch still affirmed that the U.K. has a "extremely strong credit profile". It's reported that Chancellor of Exchequer Osborne could extend the BoE's Funding for Lending Scheme this week, to encourage loans to small businesses and consumers.

Outgoing BoC governor Carney said that the economy needs to grow above the potential rate of 2% before raising interest rates. Also, there needs to be a "positive evolution of household debt and aspects of the housing market". Meanwhile, inflation needs to be "picking up a little bit" before the move. Carney will become BoE governor later in the year, and he said that European leaders "have to do a lot on the structural side in reforming the financial system and fixing their finances and banks over a number of years."

Latest CFTC data showed that yen net shorts are close to last year's worse number on April 16. Sterling positions seem to have improved, but Canadian dollar positions deterioration continued. Euro net shorts dropped for the second weak to -29.8k, from -50.9k. Yen net shorts rose back to -93.4k, from -77.7k, and is close to last year's worst of 94.4k. Sterling net shorts dropped to -62.0k, from -70.0k. Australia dollar net longs dropped sharply to 53.2k, from 77.9k. Canadian dollar net shorts rose for another week to -75.9k, from 71.1k.