The reserve story hit the wires overnight with the Chinese again stressing they planned to diversify reserves. With economic trends pretty much factored into the forex market the reserve issue does provide an "unknown" for the industry. Reserves will change and the USD will be the loser but the full impact of a shift away from the US unit cannot be calculated.
What is known is that the numbers could be significant and that the USD will come under pressure but the question is will the reserve changes overshadow the investment shifts and carry trades that are in vogue at present. BOJ rates are to remain low, high yielders will remain top dog and the USD will have a crisis of rate confidence. It is a little premature to call USD/JPY lower at this stage.
The Nakagawa anti rate hike remarks are a point in question, USD/JPY has climbed sharply to 117.90 from 117.40 on the official's views. The week could be dominated by Yen repatriation with sizeable redemption and coupon payments due. On the USD/JPY plus side speculation of a poor Q3 Japan GDP number tonight and further talk of agency bids in the low 117's.
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