Japanese Yen Rallies on Commentary from Shiozaki, Fujii

• NZD Business confidence hits 3-year high while trade deficit widens
• GBP Housing sector growth refuses to abate
• EUR German GfK weaker than expected
• USD calendar empty

The opening of the London session wrought a wave of carry trade unwinding, sending yen surging against the majors and commodity dollars with the help of a little jawboning by Japanese officials. Yen racked up the biggest gains against Euro and Pound, as EURJPY dove from the 159.50 level to a low of 158.70 while GBPJPY plunged from the 237.50 figure to bottom out at 236.51. USDJPY price action was more even tempered, as the pair held between 120.60-120.80 after dipping from the 121.00 zone.
During a scheduled press conference today, Japanese Chief Cabinet Secretary Yasuhisa Shiozaki sparked the Yen rally when he said that an “end to deflation is in sight,” though he failed to elaborate. Details proved to be unnecessary, however, as Vice Finance Minister Hideto Fujii drove the bullish Yen sentiment home when he told reporters that Finance Minister Koji Omi may discuss currencies with US Treasury Secretary Henry Paulson when the US official visits Japan on March 5. Mr. Fujii also added that they would likely discuss the Japanese economy and global economic conditions. Nevertheless, the actual rhetoric that will actually emerge from the meeting will likely consist of the same commentary we’ve heard time and time again regarding how currencies should reflect the fundamentals. Now that the Bank of Japan has taken the risk of raising rates to 50bps, they’re unlikely to do so again for quite a while as BOJ Governor Toshihiko Fukui’s statement last week saying “We’ll maintain very low interest rates and will gradually adjust their levels based on the conditions of the economy and prices” signals that the central bank will take a wait-and-see approach. As a result, the gathering of US and Japanese officials will probably inject a bit of volatility into yen trade, but in the end prove to be a non-event.
Meanwhile, Kiwi probed two-year highs of .7102 today as the combination of rising imports and improving business sentiment spurred speculation of rate hike by the Reserve Bank of New Zealand next week. Imports jumped to NZ$3.31B in January, bringing the trade deficit to widen to NZ$833M as domestic demand remains resilient despite record high interest rates of 7.25 percent. Additionally, the rise of the NBNZ business confidence indicator to a three year high indicates that consumption will likely continue to grow as companies hire on additional workers. With RBNZ Governor Bollard already maintaining a hawkish bias on hot demand and a solid housing market, today’s releases only raise the prospects of NZ rates at 7.50 percent.