The revaluation announcement by China has led to overall strength in the Yen crosses. With currencies expected to be on the discussion table at the latest G8 meeting, the finger pointing may now shift from China to Japan.
The three step move by China will give foreign ministers little to criticize. Japan on the other hand has done nothing despite the significant weakness of their currency. The pressure is on now for the Japanese to take initiatives to strengthen their currency as well. The most logical way to do this would be through an interest rate hike. Unfortunately this puts the central bank in a very tough situation since economic growth has been weak. Last night, we had disappointments in both the tertiary industry index and in leading economic indicators. Despite the weakness of the Yen, aside from selected corporate profitability, the rest of the country has not really benefited. The key data releases next week are trade and inflation.