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The trigger for the fall was a story by Sankei that the BOJ is struggling to come up with consistent monetary policy message for the market. There is apparently a lot of disagreement on the board as to the extent of unconventional measure that should be implemented. Governor Haruhiko Kuroda seen to be a negative interest rate supporter. Deputy Governor Kikuo Iwata is seen to support expanding monetary base while Takahide Kiuchi, Takehiro Sato appear to oppose additional easing.
The discord on the BOJ is exacerbated by the fact that US economic data is decelerating putting in doubt any prospect of Fed rate hike this year and therefore only adding to the woes of strengthening USD/JPY. Yesterday's ISM Non-Manufacturing number was the second shocker in a week dropping 4 points as it printed at 51.4 versus 55.4 barely staying above the 50 boom/bust line. The ISM Manufacturing report last week dipped below that mark, indicating that the sector has moved into contraction.
Given the news, the Fed may now face mounting pressure to remain on hold in September despite the relatively buoyant labor market. That in turn will keep US rates depressed and put further pressure on USD/JPY, frustrating the Japanese authorities efforts to weaken the currency and escape the deflationary spiral.
USD/JPY found bids ahead of the 101.00 level and rebounded to 101.60 by mid morning London dealing, but the pair remains under pressure especially ahead of next week dual BOJ/FOMC set of meetings on the same day. Several BOJ advisors have argued that the BOJ should wait for Fed to move before committing to any additional QE efforts, but with Fed action now highly unlikely the BOJ may have to go at it alone in trying to prop up the USD/JPY pair.