Yen Dropped To Fresh Low Against Dollar As Us Supports Anti-Deflation

The Japanese yen weakened broadly and dropped to fresh low against dollar after a US official expressed support for Japan's anti-deflation policy. Lael Brainard, the Treasury Undersecretary for International Affairs , who will represent US at the G-20 meeting in Moscow, said that the US "supports the effort to reinvigorate growth and to end deflation in Japan". Meanwhile, she also urged that the G-20 "delivers on the commitment to move to market-determined exchange rates and refrain from competitive devaluation." Meanwhile, Japanese Finance Minister Taro Aso said after a cabinet meting that he would tell the G-20 that the country is "firmly conducting monetary and economic policies in order to escape from a prolonged deflationary stagnation." USD/JPY broke through 94.05 minor resistance and is now heading for a 95 psychological level. Meanwhile, EUR/JPY and GBP/JPY is set to challenge near term high of 127.70 and 147.97 respectively.

There were also several comments from officials regarding exchange rates. Bundesbank chief Jens Weidmann said that "the latest indicators don’t signal a serious overvaluation of the euro despite its recent appreciation". He also warned that "an exchange-rate policy to specifically weaken the euro would lead to higher inflation in the end." He emphasized that history showed "politically induced depreciations show that they don’t normally lead to a sustained increase in competitiveness." And, "if more and more countries try to depress their currency, it will end in a depreciation competition, which will only produce losers." However, French Finance Minister Pierre Moscovici said that "exchange rates can’t be subject to moods or speculation," and he called for a "coordinated approach at the international level which enables exchange-rate stability". It's reported that the G-7 is debating the issue of releasing a joint statement prior to the launch of the G-20 later this week, which will indicate a commitment not to target exchange rates in a setting policy,

In the US, Fed Vice-Chairwoman Yellen, a frontrunner to succeed Bernanke in 2014, said that the Fed will continue to take "forceful action to increase the pace of economic growth and job creation." She also noted that while the Fed set the thresholds of 6.5% unemployment and inflation expectation of 2.5%, these "thresholds for possible action, not triggers that will necessarily prompt an immediate increase" in rates. Meanwhile she noted that dollar has been depreciating very gradually in real terms and "it has made a very substantial difference to the U.S. current account deficit that has come down a long way and is no longer on what I would to refer to as an unsustainable course."

On the data front, Australia NAB business confidence was unchanged at 3 in January. UK RICS house price balance dropped to -4 in January. Japanese consumer confidence, machine tool orders will be released. Main focus would be inflation data from Swiss and the UK in the European Session.