Like the US dollar, the Japanese yen was strong for most of the day on signs of market-wide risk aversion, but news Lehman was in talks with prospective buyers helped lead risky assets higher.
This move was to the detriment of the yen primarily, though the US dollar suffered as well. Furthermore, we continue to see that Japanese fundamentals have little bearing on the currency, as the latest forex correlations report shows that carry trades and the DJIA have increasingly been moving in lockstep (though the correlation is not as high as it was in 2007). Nevertheless, traders should not ignore the release of the final reading of Japanese GDP, as the economy is expected to have contracted sharply during Q2. In fact, GDP is forecasted to fall an annualized 3.1 percent, the worst result since Q3 2001. Going forward, the Japanese yen will continue to depend on the status of risk appetite in the market, and while the currency could pull-back in the near-term, I still think there is long-term bullish potential for the low-yielder. [B]As a result, I will look for JPY buying opportunities on sharp declines.
Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.[/B]