The main feature in the market today is yen weakness.
USD/JPY has done the full round trip from yesterday’s drop and more. On the day, it’s up nearly 150 pips to 99.32 while EUR/JPY is up 220 pips to 134.63.
The move is all about the carry trade. Fears of the taper sparked a ‘risk off’ rout in emerging market currencies and stocks. Some of it eased in the past two weeks but there was still major money parked in safe havens expecting a flight to safety on a taper.
In addition, today hawkish BOJ member Kiuchi, said the central bank could ease further. “I can’t deny the possibility that the Bank of Japan will be influenced by external factors such as market expectations and will be forced to respond in such a way.”
The move in the yen signals an extended period of good returns for risk trades. One caveat is that the Fed’s move could eventually be seen as a sign of a weak economy. For example, this was the headline in the Globe & Mail today:
