The JPY crosses influenced price action in quiet European trade. Decent gains in AUD/JPY and a firmer EUR/JPY helped to underpin USD/JPY throughout the session. Aussie was buoyed amid expectations of heavy AUD positive M&A flow and this lifted AUD/JPY to fresh 10-year highs of 98.23.
EUR/JPY extended the overnight rally to record a 159.95 high. Exporter offers and general selling by option names capped and the pair favoured consolidation around the 159.80 area for a large part of the session. USD/JPY maintained a narrow trading range, with back ground support coming from the JPY crosses, yet topside movement was capped by exporter and sovereign name offers from 119.20 up to 119.35. The weekend G7 meeting and renewed concerns that problems in the US sub-prime loan market could weigh on price action going forward.
An unnamed German official said that FX would be discussed at the meeting, although there was no specific mention of JPY. Interestingly, BOJ Governor Fukui said there was no rapid return of the JPY carry trade despite the overnight performance in the JPY crosses. He confirmed that rates would move at a gradual pace.
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