Golden Week in Japan has begun and we are already seeing some profit taking in the Yen crosses. Last week we had talked about the price pattern of USD/JPY around Golden Week. In 7 out of the past 10 years, USD/JPY has sold off either the week leading up to or the week of the holidays.
Since we did not see selling the week leading up to Golden Week, then there is a strong possibility we could see USD/JPY weakness over the next few days. In addition, end of day selling in the Dow has also put pressure on the yen crosses. We have pointed out that carry trades have been very closely correlated with the performance of the stock market and this relationship has manifested itself again today. There was no Japanese data released overnight. We have labor cash earnings due out this evening, which should report an improvement even though earnings remain soft overall.