Daily Economic Commentary: Japan

[PipDiddy]

The yen ended 2009 on a sour note as Standard and Poor, a global credit rating agency, warned Japan that they could cut its sovereign debt rating if it does not take steps to control its rising debt.

Japan’s fundamentals do not look good as well. Last week, its retail sales report showed a 1.0% drop, indicating that consumer spending remains very weak. In fact, looking at past reports would reveal that the last time sales increased was all the way back in September, 2008. Employee wages have been on the decline as well. The report on employee wages for November showed a huge 2.8% drop. Employee wages have consistently fallen since November of 2008.

No important news will be coming out of Japan this week so it looks like the yen will start the year at the mercy of technicals and economic data from other nations! The yen has lost quite a lot of ground in December and given Japan’s sour fundamentals, we could see more yen weakness in the upcoming months.

[PipDiddy]

The yen joined the anti-USD gang yesterday and got some revenge when it posted a gain after it had lost 4 days running. The USDJPY pair dipped, with price action closing at 92.59.

No data coming out from Japan over the next couple of days. Take note that the yen has been taking a beating against across the board, the only exception being yesterdays win against the USD. Watch out for news being released from other countries as signals of whether this risk rally will continue. Lastly, if dollar weakness continues, it may very well be the only currency that the yen appreciates against.

[PipDiddy]

The Yen displayed its dominance against its major counterparts yesterday when a Chinese official remarked that the Yuan is being forced to appreciate. This caused Asian currencies to rally based on traders' speculations.

The Yen seemed indifferent to Japanese Finance Minister Fujii's plans to resign. Just a few days ago, Fujii was rushed to the hospital when he suffered fatigue after compiling Japan's budget. Although his resignation would bring about plenty of uncertainties regarding future monetary policy and the possibility of currency intervention, Yen traders shrugged off these concerns and banked on news about the possible appreciation of the Yen.

Japan won't be releasing any economic reports today until Thursday. On Friday, the index of leading indicators will be released at 5:00 am GMT.

[PipDiddy]

Tuesday was stellar for the yen. It was, however, a different story altogether yesterday as it slipped against all the other major currencies.

Looks like risk appetite is back at least during the start of the 2010 as investors seek higher yielding assets and currencies due to an optimistic global background. This leaves the dollar and the yen on the side walk. For one, the Aussie is already trading at a 15-month high against the yen as of the moment.

No economic reports were due yesterday in Japan. Today will be ‘quiet’ in Japan as well.

In the meantime, the US will later release its unemployment claims for the week ending January 2. Initial jobless claims are seen to reach 449,000 in addition to the 432,000 listed during the previous week. An increase in the figure could set a negative tone in the markets. Such then could be bullish for the dollar and the yen at least over the short term.

[PipDiddy]

The yen took a huge blow yesterday when Japan’s Financial Minister Kan commented that it would be nice to see the yen weaken further. The USDJPY, after hitting its intraday low of 92.11, rallied more than 100 pips within a few hours after the statement.

Japan’s Financial Minister Kan said that his office must closely work with the Bank of Japan in order to bring the yen to more desirable levels. He added that Japanese companies want to see the USDJPY hit the 95.00 level as it would greatly help demand for exports. Given the trend in yen-selling as of late, the 95.00 targets seem highly probable.

No highly important economic data released from Japan yesterday and none will come out today but do expect to see the US non-farm payrolls later. With the start of a brand new year, the upcoming NFP report will be a very important one as it could the dictate the tone of currency trading this month. My buddy, Forex Gump, did a short article on the NFP in his blog. Go ahead and check it out for his thoughts on the issue!

[PipDiddy]

Heeyahh! The yen took advantage of USD in Friday's trading session and karate chopped its way to make some headway. After two days of losses, the yen recovered, allowing the USDJPY to close lower at 92.61.

Tonight at 11:50 pm GMT, the current account will be released. It is expected to show that the surplus fell from 1.38 trillion yen to 1.22 trillion yen. While this report doesnt normally have a high impact on the markets, it is important to note because it signifies that demand for yen is falling. Take note that high level Japanese officials have been hinting of possible currency intervention should the yen appreciate too much. Seeing as how yen buying has cooled off in recent weeks, this may not be problem in the short term. However, should the yen make major gains in the coming weeks, we could start hearing some verbal intervention once again.

[PipDiddy]

News of Japan Airlines' possible bankruptcy drove the Yen lower against most of its counterparts during the early Asian session. Later on, the Yen was able to recover some of its losses as Japan released its bank lending report, current account balance, and M2 money stock data.

Japan's biggest airline company, Japan Airlines, has already been undergoing financial problems and is expected to file for bankruptcy this week. Several international airline companies, including American Airlines and Delta Air, have offered to provide financial support for the ailing Japanese airline company but have been turned down. It seems like Japan Airlines is more inclined to take a government bailout, which doesn't sit too well with the Democratic Party of Japan. These rising debt concerns and potential conflicts in Japan caused investors to lose their appetite for the local currency.

On a brighter note, Japan's current account surplus grew by 77% year-over-year in November as it reached 1.30 trillion JPY. This was much higher than the consensus of 1.22 trillion JPY. Components of the report showed that exports fell by 7% while imports dropped by 18.2% during the month.

Today, Japan will release its Economy Watchers sentiment reading for December. It is expected to climb from 33.9 to 34.2, implying that people are becoming less pessimistic. If the actual figure beats the consensus, the Yen could recover some of yesterday's losses.

[PipDiddy]

The yen soared across the board yesterday as China tightened again its banking policies. The Aussie suffered its worse daily loss in more than a month as the AUDJPY fell and closed at 83.69 from an opening of 85.79.

After China's central bank raised the rate on its three-month bill by 0.05 percentage points, the bank once again made a step further in cooling down lending by increasing the banks’ reserve requirement by 0.5 percentage points. This policy has a similar effect of lessening the money supply which, of course, dampens investor optimism.

The yen surged as China’s new policy lessened the demand for higher yielding assets.

Later at 11:50 pm GMT, data Japan’s machine orders in November will be due. Core machinery orders are seen to have gained by 0.3% during the period after posting a 4.5% loss in October. A jump in the figure could encourage investors to buy some higher yielding assets in Japan, leaving the yen on the sidelines.

[PipDiddy]

The yen, after its spectacular performance on Tuesday, was unable to retain its gains as the currency staged a major drop against its western counterparts, the euro, the dollar and the pound.

Japan’s core machine orders for November released just a couple of hours ago were terrible. The report printed an 11.3% decline, completely off from the 0.3% increase initially predicted. The result was also more than double the drop seen the month before.

Japan has nothing left on its economic calendar this week so the yen would most likely be moved by data coming out of other countries. With that said, make sure to watch the retail sales report from the US later on, as it could cause some serious movement on the USD/JPY pair.

[PipDiddy]

After it looked like the yen was going to come up last in the currency races yesterday, other majors tripped up on some bad economic news, allowing the yen to catch up and finish a winner. The USDJPY went as high as 92.05 before dropping midway through the US session to close at 91.10.

The yen's rally was attributed to some poor data from the US and euro zone. US retail sales dropped more than expected while ECB President Jean Claude Trichet mentioned that the euro zone economy was still unstable. Could this be a sign that risk aversion was in play yesterday? Remember, when things aren't looking too good, investors run back to the safety of the yen and dollar... and since the dollar has been experiencing weakness as of late, this benefits the yen!

Nothing on deck today, so be on the lookout for shifts in risk sentiment. If more poor news comes out from other countries, the yen could stand to gain once again.