Last week in Forex trading ended with corrections to prevailing trends. High flying currencies, namely the Japanese Yen and the Swiss Franc, weakened considerably during last hours of trading. That was in response to the speech by Bernanke during the FED annual symposium in Jackson Hole, Wyoming. He outlined likely additional steps to be taken by the central bank in order to spur the economic recovery in the USA, watered down new quantitative easing.

Now it is time for the Bank of Japan. The BoJ is expected to hold an emergency meeting on Monday to ease monetary policy to counter the Yen’s strength. This anticipation was heightened by  Governor Masaaki Shirakawa’s return to Tokyo from a trip to the United States earlier than projected. Speculations abound on what new steps might be taken, but most likely outcome is to expand a program for short term, low interest loans, even though such scheme is already in place and, so far, failed to produce desired results. Another option is to step up purchases of government bonds. And, of course, everybody is looking for signs of intervention, which, frankly,  is not very likely to happen.

Whatever they do, or do not, currencies should be responsive to any news from Japan. If the meeting is held, as speculated, than the exact steps taken by policy makers will be scrutinized and assessed, followed by criticism of actions being to strong or enough. That will be reflected in Yen and its crosses, but predicting how the JPY will respond to an event which might or might not happen is, at best, too complicated to be seriously entertained. Even the Friday closing indicates uncertainty in markets.

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Here is the economic events calendar for Monday, as well as few other interesting clips.

The FED held its annual monetary symposium in Jackson Hole, Wyoming today. That was the big event of the day, one that everybody waited for. Currencies, and most other financial markets, practically froze in hours leading to Bernankes’s speech at the meeting. Mr Chairman acknowledged that the economy is not doing what he had been predicting. At the same time he declared that FOMC “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

So, what is it that the FED will or can do to stimulate economy? They can further increase purchases of securities, mainly the US treasuries, in an attempt to keep long term interest rates low. Another option is a reduction of the interest rate the Fed pays on banks’ excess reserves, supposedly encouraging (forcing)  US banks to start lending. Currently, the central bank pays 0.25% on these deposits which would drop to 0.1% or even 0%.

Frankly, neither one of these steps seems like strong stimulant to the economy, but Mr. Bernake is a very convincing speaker and the markets responded positively. Currencies reversed their recent trends, for today at least, with both the Yen and the Swiss Franc falling. Apparently today nobody was interested in safe havens and “risk” was the name of the game. Before getting too enthusiastic, though, one should remember that we have had these phases of “Bernanke effect” before and they did not last…

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