USD/JPY and the JPY crosses slipped lower. Market nerves over short-JPY positions continued, fueling a pick up in speculative account selling and FX related hedging. Exporter interest was noted and some repatriation relating to US and EZ coupon payments was pushed through. Stops gave way in USD/JPY and EUR/JPY but both pairs stabilised over the course of the European morning.
USD/JPY pushed on 121.20 but was unable to extend losses amid importer bid interest and real money cross JPY demand. EUR/JPY breached 157.00 and ran into good real money demand at 156.80. The USD/JPY recovery extended to 120.50/55 and EUR/JPY traded back into 157.25. The market will remain on a tentative footing, with a slew of US data/events due.
The highlights include US GDP, Chicago PMI, US FOMC announcement and a testimony from US Treasury Secretary Paulson at 15:00GMT. Paulson is expected to comment on Chinese FX policy and there are fears JPY could feature given the current climate. Recently US Treasury"s Adams played down concerns, which reduced JPY risk. This could encourage speculative accounts to increase JPY sales into the London close.
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