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I do not expect anything new to come out of the EU economic summit and I think the currency market has already to a large extent priced that in. From that point of view I am not expecting the EU summit to cause too much reaction in the currency market and certainly not in the Yen.
What will probably have a bigger impact on the markets is a disappointing data coming from China, given the ongoing concerns about how quickly the Chinese economy might be slowing down. Hence, I suspect that the soft data will probably have a stronger effect on the Japanese Yen.
How would you evaluate the current performance of the Yen against the US Dollar?
I think the Yen is still very much perceived as safe haven in the current environment. With ongoing concerns about the European crisis we see USD/JPY quite comfortably below the 80 level. I believe, if we see the continuing stress in the bond markets in Spain and Italy, we will see the Yen continuing to outperform. Consequently, we see USD/JPY heading lower. However, I think there is going to be a limit to how low USD/JPY will go, given that the market will be worried about possible BOJ interventions if USD/JPY gets down too low. At the moment I expect that the pair might go as low as 78, but I think markets will be hesitant to push USD/JPY too far below 78, due to the fears of the BOJ intervention.
What is your short and long term forecast for these pairs? What will be the main drivers for the Yen performance in the future?
In terms of our medium to longer term view for USD/JPY, we think that there is a potential for USD/JPY to go lower towards possibly 76. Ultimately, Japan still runs current account surplus. Surplus countries in the current environment should see their currencies perform stronger against deficit countries.