Week in FX Asia – Bank of Japan Dissapoints Markets with Inaction Yen Rises

This week the Bank of Japan found out just how harsh and fickle a mistress the market can be. The BoJ was the darling of the market and the shining example of how a central bank should intervene. Tuesday Governor Haruhiko Kuroda and the Japanese currency suffered the brunt of the market's criticism for their lack of action. The currency rose to 96 and has continued to rise as the week progressed. There were expectations that the BoJ would increase its monetary stimulus.

Comments from the influential Mr. Yen summed up the feeling around Prime Minister Shinzo Abe's third arrow of reform. Eisuke Sakakibara is pessimistic given the proximity of elections. Abe can't introduce new reforms until fall to avoid compromising the results of the elections. Abe's bold statements and follow through by Kuroda was seen as the one-two punch needed to get Japan back on track, but the expectation was that they would not stop there.

Sakakibara does not expect...