Yen Quiet But Data Shines

Talking Points                                             

·          JPY GDP 3.2% buoyed by stronger domestic demand

·          JPY CGPI up 0.7% record high in decade

·          UK PPI input declines markedly

·          No USD events save for monthly budget

USD/JPY spent the first night of the week trading in a tight 114.00-114.35 range as the markets digested last weeks massive dollar rally and the hawkish rhetoric of <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Bernanke and Co. continued to resonate across the dealing desks from Tokyo to London. However,  economic data released tonight suggests that Japan has turned the corner in its decade long  struggle against deflation leading many market players to conclude that the BoJ will have to lift the Zero Rate Interest Policy sooner rather than later. Japanese GDP rose at a very healthy 3.2% level up materially from the initial estimate of 1.9%. Furthermore, the growth  in GDP came from domestic demand indicating that the Japanese consumer  is beginning to benefit from improved labor demand and stronger profitability of the corporate sector.  On the corporate front the Corporate Goods Price Index rose for the 12^th straight month to a record 0.7%  from 0.2% expected. With  CGPI increasing at 3.3% on annual basis the case for keeping short term rates at 0% is becoming tenuous buy the minute.  <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Traders, therefore will focus on this Wednesdays BoJ meeting to gauge Governor Fukuis intentions vis a vis the ZIRP. USD/JPY may yet rally to the 115.00 level buoyed in the short term by last weeks dollar strength, but should Mr. Fukui signal a change of posture by the Bank yen could strengthen materially as carry traders scurry for the exits.

FX Upcoming