At the end of the previous week, Japan unveiled a massive 15 trillion Yen ($154 billion) stimulus package in an effort to alleviate some of the strains caused by the financial crisis. It is the largest that the Asian country has ever embarked upon and also accounts for about 3% of the country's gross doemstic product.
The plan seeks to invest in “green” technology in an effort to increase to long-run vitality of the nation. “The world is at a turning,” Prime Minister Taro Aso said. He added “Japan is at its most crucial crossroads in 100 years.”
Forex markets have yet to significantly react to the news. This can be attributed to the fact that U.S. and European equities markets were closed on Friday. As we’ve noticed over the last 6 months, Dollar pairs have been correlated negatively to stocks. In fact, it appears as though USDJPY has been at a state mate since the announcement on Friday. As such, the Yen’s short-term fate may be determined by the reaction on Wall Street tomorrow. The Asian currency may actually be buoyed by strong investment sentiment. Money-market yields in Japan may rise as investors flock to stocks, allowing outsiders to invest in Yen denominated accounts in an effort to lock in higher interest rates.
Al Bawaba
