The Japanese yen ended on a mixed note on Friday, falling against the US dollar and New Zealand dollar while gaining against the Canadian dollar. The moves suggest that risk appetite remains on edge, which was also evident in equities as the DJIA closed at the highest level since January 6, but still remained in consolidation mode below 8800. This weekend the Group of 8 (G8) will meet, and while it may ultimately prove to be a non-event, traders should keep an eye out for the communiqué as indications that exit strategies for the stimulus measures enacted by the member countries are being plotted could provide a boost to risk appetite when trading resumes on Sunday. Though highly unlikely, discussions about currencies would be sure to shake up the markets as well.
Next Monday evening, the Bank of Japan is anticipated to announce that they are leaving rates unchanged at 0.10 percent, but this is not the part of the central bank’s announcement that will garner the most attention. Instead, the FX markets may only respond to the sentiment reflected in their subsequent policy statement. After the BOJ’s last meeting, they raised their outlook on the economy for the first time in nearly 3 years, saying that “economic conditions have been deteriorating, but exports and production are beginning to level out.” There is speculation that the BOJ will upgrade their outlook once again, and if this is the case, the Japanese yen could gain on a very short-term basis. On a longer-term basis, though, risk trends have been driving price action and the impact of positive BOJ commentary may not go very far.