Yesterday we said that carry traders haven?t given up yet and today that continues to be true. The rebound in the Dow Jones Industrial Average has helped to take AUD/JPY to a fresh 17 year high and keep EUR/JPY, USD/JPY NZD/JPY and CAD/JPY in positive territory. GBP/JPY and CHF/JPY did not join the party, but that was because of weaker economic data. With no major economic data from Japan this week, the US stock market and carry trade correlation has been the primary driver of the strength and weakness in the Yen Crosses. The only piece of data released from Japan was department store sales, which hit a 9 year high. Today, Bernanke helped the rally by defending the Japanese Yen.
He indicated that the Bank of Japan has not been manipulating the Yen and for the most part, the weakness of the currency is due to their interest rates and inflation situation. His lack of concern about the currency?s weakness suggests that for the time being, the Yen has not slipped to a level that warrants intervention or even tough words from the US. He is watching USD/JPY and not EUR/JPY. Bernanke harped much more on the issues that the US has with China including their slow pace of currency reform.