Yen Weakens Broadly In Reaction To G20

The Japanese yen weakened broadly in the Asian session today, as Japan escaped direct criticism from G20 on the recent policies that drove the sharp currency depreciation. Japan received no censure during the meeting, and its policies were perused for supporting the economy rather than intentional devaluation. The G20 statement merely mentioned a pledge not to target the exchange rates for competitive purposes. Outgoing BoJ governor Shirakawa reiterated that BoJ's measures "have been and will remain" targeted at achieving a "robust economy through stable prices," and the G20 statement is "absolutely in the same spirit of our monetary policy." It's believed that while Japan might refrain from discussing the currency, it would continue to pursue aggressive fiscal and monetary easing ahead, in particular after the new BoJ governor comes on board.

Japanese prime minister Abe said today that raising the inflation target to 2% is "already producing results" with "rising inflation expectations". He urged "continuing monetary easing" until the target is reached. Meanwhile, Abe mentioned, cautiously, that "I'm not in a position to comment on an appropriate currency level. Basically, our policies are not aimed at weakening the yen." Nonetheless, he admitted that monetary policy plays a "major" role behind exchange rate moves. Abe also said he will consider revising BoJ laws to ensure it's independence. It's also reported that he is close to choosing the next BoJ governor to reply Shirakawa on March 19. Former BoJ deputy governor Muto is the front runner, while former BoJ deputy governor Iwata is a close alternative. Muto is generally seen as least dovish and aggressive.

In Europe, Bundesbank head Weidmann said that the G20 leaders were in agreement that "politically driven devaluations can't sustainably improve competitiveness, don't solve structural problems and produce backlash reactions, and the clear language in the communique underlines this unity." He expressed the concern on "creeping politicization of central banks." Earlier, he also noted that euro's strength "is one factor among many in determining future inflation rates", and it's not justifiable for ECB to make any monetary policy decision with "one single factor".

Fed Chairman Bernanke noted last Friday that "...with unemployment at almost 8 percent, we are still far from the fully healthy and vibrant conditions that we would like to see." He added "...that by strengthening the U.S. economy we are helping to strengthen the global economy as well." And, that the Fed "... would provide accommodative monetary policy in our effort to foster maximum employment and price stability."

Latest CFTC data indicates that on February 12, there were sharp deterioration in Aussie and Sterling positions compared to the prior week. Meanwhile, the Euro long receded mildly; Euro net longs dropped to 24k contracts, down from 38k in the prior week. Yen net shorts dropped to 61.3k, compared to 68.4k, but that is merely repositioning ahead of G20. Sterling turned net short for the first time since last September. Traders are net short 16.8k contacts, comparing to 1.2k net longs the prior week. It should be noted that this data followed the brief recovery felt by the sterling following Carney's speech to the UK parliament. Australian dollar net longs dropped sharply to 54k, down from 80.9k. This is nearly a half compared to December's high of 103.3k. Canadian net longs dropped slightly to 26.6k, down from 27.8k.