The US dollar strengthened against the yen this morning over improved risk appetite.
With Asian stocks closing higher this morning and European equities broadly stronger, the yen pulled back as investors were willing to put their money to work and take up positions in more risky assets. The pressure continues on the Japanese government to intervene in the currency markets to stem the yen’s rise, however any action is now considered futile unless there is a coordinated approach among the developed nations to control the exchange rate. It seems unlikely that other nations would be willing to assist Japan as they have their own domestic growth issues to deal with and keeping their currency as low as possible is in their interest in order to support export demand. As a result, USD/JPY is likely to continue being dictated by risk sentiment in the short-term, which appears to be improving following better-than-expected economic developments from the US this week including a rise in manufacturing growth and improved pending home sales. In this regard, the US payroll data this afternoon will play an critical role in determining risk tolerance in the near-term.
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