The Japanese yen continues to lose ground against the US dollar, following the announcement by the Japanese government of a new stimulus package. The yen responded by briefly breaking past the 89 level. The yen also lost ground after Japanese Current Account was released. The key indicator was well below market expectations. There was some good news, as Economy Watchers Sentiment was well above the estimate. In the US, Unemployment Claims continues to look weak, as the key employment indicator failed to meet the estimate for the second straight reading. Friday looks to be a quiet day, with just three releases, all out of the US. The highlight is US Trade Balance.
Since taking office a short time ago, the new Japanese Prime Minister, Shinzo Abe has promised dramatic change, and he has wasted little time keeping his word. On Friday, Abe announced a new stimulus program, worth $224 billion. The government says the new program will kick-start the languishing Japanese economy and could create up to 600,000 new jobs. The stimulus program is a major plank of Abe’s ambitious economic platform, intended to stimulate economic growth. The government is determined to stamp out deflation, which has been a long-term problem for the sluggish Japanese economy.
The prime minister reiterated that he wants the Bank of Japan to raise its inflation target to 2%. The BOJ, which currently has a target of just 1%, meets later this month, and analysts expect that the powerful central bank will comply. The government has declared that it wants to see a weaker (“more competitive”) yen, and the results have indeed been tangible. The Japanese currency has declined about 8 per cent against the US dollar since mid-November. However, there is unease in the US and other countries at the sharp drop in the value of the yen. The US has stated that it would prefer to see the Japanese government take steps that will directly facilitate growth in the economy, rather than use the “hammer” of monetary easing to manipulate the value of the yen.
The US managed to dodge the fiscal cliff bullet last week, as Congress managed …