Forex Flash: USD/JPY in focus after G20 verdict – UBS

The USD/JPY resumed its uptrend overnight in the wake of the weekend G20 statement, which made no explicit mention of Japan or the weakening yen. In fact, the right to use "monetary policy" to ensure "domestic price stability" was enshrined in the text. According to Research Analyst Gareth Berry at UBS, “That does not mean countries may exploit this as a vehicle specifically to influence exchange rates, however entrenched deflation in Japan would appear to provide justification enough for more easing.”

If further currency weakness follows as a result, then G20 countries seem willing to tolerate this – a position that chimes with the G7 communiqué released a few days earlier. Reading between the lines though, there was evident concern over the tendency of Japanese politicians and policymakers to mention preferred or fair value levels - which has had the effect of guiding the USD/JPY higher.

Indeed, speaking in general terms, European and US representatives emphasized the need to instill "verbal discipline" and avoid "loose talk" on FX matters. The G20 pledge not to "target our exchange rates" probably means such comments will be somewhat less common in future. Today's data calendar is light on account of the US holiday, but ECB data should shed some light on the latest flows across the outer borders of the Eurozone.