USD/JPY acts as a safe haven currency when risk is off along with the US Dollar. Japan just doubled their sales tax charged. If USD/JPY does weaken to 82.00 and that is far from certain. It trades at 79.50 at the moment the move of 250 PIPS will bring EUR/JPY up from 99.25 where it is now to about 101.50 and accordingly EUR/USD would move in correlation from 124.85 to about 1.2700.
However that has to happen and right now we are not likely to see that. The point of my post is not to put very much credibility to a call from a large organization. I will watch USD/JPY however I do not think it will happen.
P.S.
Forex News
Small steps on the yen
26/06/12 @ 13:08 GMT by Simon Smith, Chief Economist
Compared to some of the price action in recent week, it’s been a fairly subdued start for EUR/USD, which has held tight to the 1.25 level so far. The real action has been on the yen, both yesterday and in overnight trade. The yen up 1% vs. the USD so far this week, with EUR/JPY softer as well. Indeed, the latter has pushed back below the 100 level once again, not far from the lows of the year to date made at the beginning of the month at 95.60.
The reasons for the yen’s strength are pretty familiar, such as exporter repatriation-demand together with the struggling global risk appetite also playing a role. Domestically, it’s worth taking note of the fact that the bill to double the sales tax (from the current 5%) passed through the lower house. Its passage through the opposition-controlled upper house should be easier, although the recent months of wrangling could prove to be politically costly for the current PM Noda.
But raising consumption tax has been a long-running issue in Japan. Tax revenues are less than a third of GDP, virtually the same as the US (which has a far lower debt burden) and way behind Italy at just under 50% of GDP. Indeed, Japan has been funding more of its spending through debt issuance rather than tax revenues for several years now. That Japan remains a ‘safe-haven’ in these times of greater austerity and focus on sovereign balance sheets has remained perplexing for some and not just recently. But after ‘Don’t fight the Fed’, one of the markets other favoured phrases has been ‘Don’t bet against the yen. The fiscal numbers continue to spell a looming disaster, but just when the market is going to wake up to that is one of the great unanswered questions of recent (and perhaps future) years.