−Investors celebrated that Bank of Japan governor Masaaki Shirakawa will step down early, and overnight, USD/JPY temporary spiked above 94. It was nevertheless expected that Shirakawa would be replaced this year by a new political appointed governor, so the announcement is not really breaking news, but rather an important message that Bank of Japan, and not least the new government, is serious about the new 2% inflation target. Thus, the fundamental case for a weaker JPY remains intact as the new Bank of Japan governor is expected to be more committed to implementing Bank of Japan’s inflation target and we still recommend buying USD/JPY on dips.

−However, price momentum looks increasingly stretched and we could see some profit taking ahead of the coming G20 finance minister meeting 14-15 February. Exchange rate policy surely seems to return to the political agenda and yesterday Hollande said that European politicians should try to steer the exchange rate for the euro. While Japan’s current policy in principle is not doing anything different from the policy the US has been pursuing in recent years, its indirect targeting of the exchange rate could be problematic. Hence, currency war and dissatisfaction with Japan’s monetary policy and exchange rate policy could be on the agenda in connection with the coming G20 meeting.

−The euro sell-off on Monday only lasted one day and yesterday the euro once again appreciated against GBP, USD and JPY. In our view it underlines the current strong support from relative rates, the cyclical outlook and risk appetite to the euro. In that respect is the expectation of easier monetary policy in Japan, the US and the UK also good news for the euro as it supports the global recovery and market’s sentiment.

−There is not much to trade on for the FX markets today. Hence, the market will probably await the ECB meeting and the hearing of Mark Carney, the coming Bank of England governor, tomorrow for direction.