Chrysler’s bankruptcy will have negative ramifications for the Japanese economy. Don’t be surprised if the Bank of Japan takes action to keep the economy from weakening and to prevent deflation.
News that Japan’s unemployment rose was not a good sign for the economy. Chrysler declaring bankruptcy put even more pressure on the Japanese Yen. Many Japanese companies will be affected by this financial disaster.
Signs that the U.S. economy was beginning a recovery triggered a rally in the USD JPY. Traders were also buying Dollars to capture the higher yields in the U.S. The strong rally in the equity markets triggered renewed interest in the carry trade.
The Bank of Japan may begin to turn its focus on the economy and the prevention of deflation. Watch for the BoJ to take aggressive action to stem the current economic weakness.