Week in FX Asia – USD/JPY Appreciates to 98 as Japanese Deflation Continues

Japanese Prime Minister Shinzo Abe took office in September after promising an end to deflation. He set a very aggressive target of 2% in 2 years. Abe was a vocal critic of the Bank of Japan, whose governor was up for re-election, for not doing enough and his team started making bold statements that took the market by surprise.

Fast forward to today and while the JPY has fallen as the result of the doubling of QE measures and aggressive statements deflation continues to grow. Falling prices discourage consumers as they hold off on spending and thus fail to boost economic growth. Japan's consumer price index fell 0.9 percent making an already tough job tougher still. Kuroda has stood by his inflation target regardless of economic uncertainties domestically and abroad.

Private-sector economists forecast 1.00% by 2015/2016. There is a lot of ground between what the Bank of Japan and Kuroda have committed themselves and what the private sector expects in terms of...