Fukui meets Bernanke: who will inflate more?

On the 20th anniversary of Black Monday (10/19/87), stocks sold off sharply, fueled by renewed recession fears. Consequently, the yen traded to pre-fed rate cut (9/18) resistance of 113 as carry trades were unwound. Although a more dovish BOJ may help sustain the carry trade against the dollar, possible spillover of the housing correction into the broader economy will force the Fed to keep cutting borrowing costs and put more pressure on the dollar. Fukui was hawkish at the G7 meeting this week, but his comments seem to conflict with the IMF's view (slowing growth and deflation) of the Japanese economy. Fukui was probably bluffing as usual.

[Dollar/Yen spot: 5-month chart]