Japanese Yen crosses or carry trades have sold off significantly today, raising the question of whether this is finally liquidation or just another bout of profit taking. The gap between Japanese and US bond yields has been narrowing with Japanese Yields holding steady and US yields selling off aggressively, which suggests that market sentiment has changed.
For USD/JPY we have seen weakness throughout the past week and further losses are of course contingent upon whether the problems in subprime become global. The degree of today?s move reminds us of the move that happened in early June which means that it could extend for a few more days next week. There is enough on the US and Japanese calendar next week to prove to us whether the markets have really turned. From Japan, we are expecting consumer prices and retail sales.