Earlier this week we compared the sell-off of carry trades to the movements in early June where a four day drop was merely a blip before fresh decade highs. The new highs reached by many of the Yen crosses today clearly indicates that the sell-off we saw earlier this week was carry trade profit taking and not liquidation.
Softer Japanese data was the trigger for the latest wave of Yen weakness. Consumer prices dropped in Tokyo and nationally. With deflation still a bigger problem than inflation, the Bank of Japan will need push back any plans to raise interest rates. Overall household spending, manufacturing PMI and housing starts were all weak, leaving the jobless rate as the solitary piece of data to report an improvement. The quarterly Tankan release of business sentiment is due for release Sunday night. This tends to be both a very market moving number due to its infrequency of release. Economists are looking for an improvement. Be careful trading this piece of news because the first 10 minutes of the release can be extremely volatile.