Japanese Yen crosses are rallying ahead of this evening?s Bank of Japan interest rate decision. The central bank is widely expected to leave interest rates unchanged because deflation remains a constant battle.
Earlier this week we had talked about how the cell phone price war in Japan is driving prices lower. Today, convenience stores were split on whether to raise food prices on some products despite an increase in their own costs. Although the problems in the credit markets have subsided, the fact that the Federal Reserve has initiated the trend of lowering interest rates makes a rate hike by the Bank of Japan stick out like a sore thumb and Japanese growth has not been stellar enough to warrant a rate hike. Meanwhile carry trades are back in vogue following the sharp gains in the US equity market. The Dow closed at a fresh record high of 14164. It is earnings season in the US, so equities could swing either way depending upon how earnings fare - should stocks continue to rise, so will carry trades.
Written by Kathy Lien, Chief Currency Strategist for DailyFX.com