The rally in the Dow exacerbated the rise in carry trades but those currency pairs already began to trend higher before the US stock market even opened. The initial sell-off in the Japanese Yen was triggered by the nonchalant attitude of the Ministry of Finance towards the carry trade.
MoF Watanabe said that there is “no immediate risks of carry trade unwind” and that any unwind would be “small compared to the entire FX market.” The Japanese government is clearly not concerned about the Japanese Yen strengthening. In fact, they probably will welcome it since it automatically tightens the economy and therefore reduces the need for a premature interest rate hike. Despite the weakness in the Yen, companies are not sharing the wealth with the people in the country and as a result, growth has been tepid. Machinery orders for April increased less than expected. The Japanese economic calendar was very light this week but it will pick up significantly in the week ahead with the second release of GDP, CGPI, consumer confidence, the current account, and industrial production due for release. The Bank of Japan will be meeting to decide on monetary policy, but interest rates are not expected to be changed.