Bank of Japan and Japanese government act over the rising yen; The rising illion dollar question: How will this week’s economic indicators influence the U.S. dollar?

Aug. 30, 2010| Written by Jeffrey Winograd

Japanese central bank makes a modest move – The Bank of Japan on Aug. 30, reacting to a scenario in which the yen has tended to linger below 85 against the U.S. dollar for almost one week, moved to weaken the yen. The BOJ announced it will increase the money available to banks under its fixed-rate fund supply to 30 trillion yen ($351.4 billion) from its current level of 20 trillion yen. The bank is ready to consider all specific policy options, said BOJ Governor Masaaki Shirakawa. Reaction to the BOJ move did not meet the bank’s expectations, with many analysts saying it was not enough and the bank may not have sufficient ammunition in its arsenal. At press time (11:30 a.m. in New York), the value of the yen was below the so-called red line of 85 USD. Meanwhile, the Japanese government made its own moves, announcing a stimulus measure to bolster the yen and the economy that will add $10.8 billion to spending in 2010. The government’s announcement included several points of special interest to forex traders – serious economic risks are increasing as the yen continues to strengthen; and excessive moves in currency markets will negatively impact Japan’s economic and financial stability. In an apparent response to the BOJ move, the government said it hopes the central bank will continue to cooperate with the government and take appropriate and flexible monetary policy to support the economy. The government also stressed it will closely monitor currency moves and, if necessary, take appropriate decisive action.

Forex traders looking for the sun to shine on the dollar – In the aftermath of a week of discouraging U.S. economic news, forex traders will be keeping an eye on key economic indicators that will be released this week. The latest gloomy news of an estimated annual gross domestic product of 1.6% may be one reason the U.S. dollar is struggling to gain against the Japanese yen. Another bad sign could be found in a major newspaper’s headline which cited “the U.S. malaise.” In American history, malaise will be the code word forever linked to the political demise of the one-term President Jimmy Carter. Will there be more poor news this week? Well, the optimistic among us will take notice of a report released on Aug. 30 showing that consumer spending rose in July. On Sept. 1, the Institute for Supply Management will release data on the manufacturing sector. On Sept. 2, the Labor Department will release weekly figures on initial jobless claims and this will be followed the next day by information on non-farm payrolls and the unemployment rate for August.