Japanese Yen Weakens Off Carry; Euro Cautious Ahead of ECB

• AUD employment at multi-year highs
• JPY Eco Watchers Slips but Future Outlook holds hope
• GBP BoE keeps rates unchanged
• EUR ECB on tap

USD/JPY once again scaled the 121.00 barrier as carry trade flows returned to the pair with majority of dealers dismissing any possible risk from the G-7 meeting this week-end. The pair was also helped by fresh rhetoric from several BoJ monetary authorities who seemed non-committal on the subject of any possible rate hike in the foreseeable future. In fact BoJ policy board member Hidehiko Haru stated that a lower yen was positive for the economy suggesting that any tightening may be put off until Q2 of 2007. Finally, today’s Eco Watchers survey of taxi drivers, waiters and barbers held more bad news for yen longs as it registered a reading of 47.2 versus 49 expected confirming the fact that the Japanese consumer remains mired in a funk. However, the release also held the promise of hope as the future outlook component increased above the important 50 expansion/contraction level to 50.9. The last time this survey popped above 50 was in October and USDJPY embarked on a 200 point downward correction shortly thereafter.
Meanwhile, the euro slipped below 1.3000 as uncertainty crept into the market ahead of the ECB rate announcement at 12:45 GMT. Traders were cautious regarding the extent of Mr. Trichet’s hawkishness in the post announcement press conference today With hopes for any concerted efforts to lower the value of the EURJPY via official communiqué at G-7 meeting quickly being dashed, the ECB may have no choice but to restrain any further rise in the euro via monetary policy. Although European central bankers vehemently state that their primary focus is on price stability rather than currency valuation, they are nevertheless subject to the political realities of the region and therefore Mr. Trichet may choose to be circumspect in his commentary regarding the possibility of any further rate hikes beyond March and the market may interpret his cautious attitude as euro bearish.
Finally as expected, the BoE left rates unchanged and pound lost ground post news, as apparently some traders who had speculated on the possibility of a second straight surprise rate hike, dumped their positions.