The GDP deflator suggests the Bank of Japan doesn't have to do anything any time soon and this is negative for the yen. Previous expectations for an imminent tightening were clearly premature.
The comments by Tim Adams were a bombshell. This is the first clear warning in a very long time by the U.S. that Japan shouldn't cap the rise in the yen. The implicit assumption is the yen will indeed strengthen.
What will probably happen is they will knuckle down and vote for reform. Things are getting better in Japan and the architect of that appears to be moving toward retaining power.
Increasingly, it seems Asian countries are wanting to slow the pace of reserve accumulation, given how high they have gotten.
The sell-off in Asia will probably continue for a few more days, maybe another week.
We expect the Fed to raise rates to 4.75 percent in March. The market isn't fully pricing this in, so it suggests a risk the dollar will receive support in the short-term.
The expectation is that Koizumi will win by a reasonable majority, that reforms will go forward and the opposition to the Japan Post sale will be crushed.
Obviously, the pressure will be on the downside of the currency until we get some degree of clarity on who is going to be a Chancellor and what form of government we are going to have in Germany.
We saw stops go out yesterday after the highs of the previous two runs were taken out.
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