Better than expected Current Account surplus failed to rally the yen in a lackluster Monday session that saw USD/JPY trade down to 117.85 in Asia only to rally back up to 118.15 in Europe. The Current Account data which printed at 1858.2 Billion yen vs. 1650.0 Billion yen expected showed a gain of 25% from the month prior. On a year over year basis however, the numbers were still down -22.6% primarily due to a massive rise in the cost of energy imports. Nevertheless, the positive news demonstrates that Japanese industry is clearly benefiting form the favorable effects of lower exchange rates and should provide further stimulus to the country's economic recovery.

The yen however refuses to participate in the good news as currency traders remain focused on the widening interest rate differentials between it and the greenback. Pouring salt on  the wounds of long suffering yen longs, LDP  policy chief Hidenao Nakagawa. expressed strong objections to an early end to the BoJ's quantitative easing policy which would prompt the BOJ to raise rates from present day 0%. “The Bank of Japan has no independence in terms of its policy target,” Nakagawa noted in less that subtle fashion. “If they do not understand that, we may have to consider changing the Bank of Japan Law.” His comments probably had far more impact on the dour nature of today's yen trade than any of the positive economic reports released earlier in the session. 

In Euro-zone the calendar was empty save for inflation and Industrial Production data from Italy - the region's number three economy. The news contained few surprises on the inflation front, but the Industrial Production data came in materially worse suggesting that  the country's economic recovery remains on shaky ground. The EUR/USD however, remained higher than its close on Friday as it struggled to stabilize at the 1.1700 figure after last week's geo-political turmoil in France and the enacted of a 3% rise in VAT tax in Germany. With an array of economic data coming out of US this week, the pair is likely to trade off the strength or weakness of the greenback rather than any particular report emanating from the Euro-zone.

Boris Schlossberg is a Senior Currency Strategist at FXCM.