JPY flows: JPY hitting new lows ahead of Katayama press conference

EUR/JPY has hit another new all time high this morning, and the JPY real trade-weighted exchange rate is close to the all time low seen in July last year. There is a press conference from Finance minister Katayama scheduled for 09:30 GMT following her meeting with BoJ governor Ueda, where the weakness of the JPY is sure to come up, along with the likely BoJ policy path given government stimulus plans. The Kyodo news agency reported on Wednesday Japan's stimulus package could exceed 20 trillion yen ($129 billion) and be funded by an extra budget of around 17 trillion yen. Katayama is very likely to once again emphasise her concern about “one-sided” and “rapid” JPY weakness, but verbal intervention has thus far not been enough to prevent the steady JPY decline.

If the JPY is not to fall further after the press conference, there will need to be some indication that the government is prepared to accept BoJ tightening to accompany their fiscal easing, and an indication that the government is at least considering actual FX intervention to halt JPY declines. If the market is allowed to continue to believe that the government is trying to prevent BoJ tightening while easing fiscally, the JPY is set to fall further.