Forex Flash: FX overnight developments, JPY and EUR in focus – UBS

The USD/JPY broke to even higher ground overnight after Lael Brainard – US Undersecretary of the Treasury said the United States supports Japan's efforts to reinvigorate growth and beat deflation. Investors took the remarks as a green light for Japan's Prime Minister Abe to press ahead with his economic plans, despite the yen weakness these are inducing.

According to Research Analyst Gareth Berry at UBS, “This also suggests that Japan may not be singled out for specific criticism at the upcoming G7 and G20 meetings on Friday and Saturday this week.”

In other news, French Finance Minister Moscovici again expressed some discomfort at where the euro is trading, however Bundesbank President Weidmann seemed unperturbed. Weidmann said there is no "grave overvaluing" of the euro, and that a hypothetical FX policy aiming to weaken the euro would lead to higher inflation. He went on to say that FX rates are considered in the conduct of monetary policy only insofar as they influence price developments. “This very much fits with remarks made by ECB President Draghi at the latest ECB monthly press conference - comments which we found to be straightforward and unspectacular, but which the market read too much into in our view.” Berry adds.