Japanese Yen Forges Morning Rally as Carry Reversal Crowds out BoJ’s Downgraded Forecast
Posted by aangsunu on 16 July 2010
source : dailyfx
More often than not, the yen’s function as a funding currency overwhelms the influence that normal fundamental developments could and should have on the currency. This was the case Thursday. The first bearish swing in sentiment in over a week would encourage an unwinding of carry interest and send capital back to the Japanese market. Closer to home, the Bank of Japan announced a hold on monetary policy (no surprise); while the group went on to rise its growth forecast for the current year (from 1.8 to 2.6 percent) and lower the outlook for next year (from 2.0 to 1.9 percent). Perhaps not fully appreciated yet though is the impact that a slowing Chinese economy could have.