The dollar was sharply higher against the yen and the euro in the Monday session, recuperating from last week’s losses against the single currency.

The US economic calendar was light today, seeing just the release of factory orders, which declined by less than expected in January, down 4.5% versus an upwardly revised 1.6% in the previous month.

Although the drop in factory orders was still less than the 5.5% drop forecasted, January’s fall marked the largest drop in factory orders since July 2000. Meanwhile, the lion’s share of the US data isn’t due out until the end of the week, with traders focusing on the January trade deficit and the February employment report.

Japan to keep the market guessing

While it remains unclear what the thinking at the Bank of Japan is, it is clear, however, what the thoughts within the government are.

Since the release of last week’s stronger than expected inflation data, government officials have grown more audible with their objections to the prospect of the BoJ shifting from its current ultra-lax monetary policy.

Despite explicitly saying that monetary policy should be left for the Bank to decide, government officials have implicitly expressed their desires for the BoJ to work in conjunction with the government to decide on policy.

Given the sharp sell-off in the yen currency pairs that have ensued in recent sessions, markets have interpreted the heightened rhetoric as a sign the BoJ may hold off in shifting from its current policy stance when it meets this week.

As a result, the scope for yen gains has been further amplified if the BoJ does in fact signal an end to its quantitative easing stance.