As the market has largely anticipated an end to the current monetary policy soon, buying of the yen will not last.
Yet, with the underlying sentiment toward the dollar being shaky at the moment, the trade report could shift market attention to deficit problems in the US and spark some dollar selling.
Foreign players have begun to accumulate short positions on the yen again in the belief that interest rates in Japan will not start rising in the foreseeable future.
Japanese institutional investors as well as mutual funds finally started to buy foreign currency-denominated assets, after having stayed on the sidelines for some time since the start of the new fiscal year.
There is a strong wait-and-see mode ahead of key economic events in the US, including tomorrow's GDP release and next week's FOMC meeting. This weighed on the euro despite a supportive strong German IFO survey.
The US reports turned out disappointing. This provided the backdrop for the yen being bought more than expected.
As long as concerns over possible interest rate rises are out there, the dollar is likely to be pressured by the unwinding of yen-carry trade positions.
As market participants are not ruling out the possibility that the US GDP ...may provide dollar-supportive evidence, they prefer to wait for the outcome.
The dollar was buoyed as the market confirmed that interest rate differentials between Japan and other major economic countries would not shrink for a while.
The dollar's bearish (weaker) trend is expected to continue unless the GDP figures are significantly stronger (than exported) or the market finds strong signals for further rate hikes in the Fed statement.
