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Friday's selloff in the USD/JPY accelerated on large volume as investors headed divested from riskier investment vehicles in reaction to the large selloff in U.S. equities. Friday's strength in the Yen also stemmed from the BoJ's decision to end a couple of its bond purchasing programs in an effort to tighten liquidity. Friday's monetary policy falls in line with the BoJ's more conservative stance since the DPJ took office. Furthermore, the BoJ was likely encouraged by the USD/JPY's recent solid performance above its important 90 threshold. However, yesterday's larger than expected decline in both the Tokyo Core CPI and Household Spending tell us the BoJ can't be too conservative with its monetary policy since deflationary pressures are still bearing down on consumer prices. Additionally, even though last week's Industrial Production number printed better than analyst expectations, the 1.4% rate of growth is unsubstantial compared to the huge declines we witnessed during late 2008/early 2009. Hence, Japan's economy still faces a long path to recovery.
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