Daily Economic Commentary: Japan

[PipDiddy]

Trading on the USDJPY was as tight as an authentic sushi roll, as the pair traded within a tight 50 pip range! Meanwhile, the yen fell against the euro and pound, indicating that risk sentiment is still driving the yen.

Rumors out of China are that with recent economic data showing strong figures, the People's Bank of China may just make more moves to curb growth. In the past couple of months, the PBOC has made moves aimed at slowing down China's growth in order to a sharp rise in inflation. Take note that China is a major importer of Japanese goods - if demand from China starts to falter, it will have a significant effect on the export driven Japanese economy. I'm going to keep my eye out on this issue and I'll be sure to update you on it!

Nothing major shipping out of Tokyo today, but that doesn't mean you can sit back, relax and go skiing on Mt. Fuji! We've got retail sales data coming out from the US tonight which might just snap the USDJPY out of its lull.

[PipDiddy]

After losing ground to its major counterparts, would the Japanese yen suffer another round of weakness this week? I have a nasty feeling that something else other than risk appetite is weighing the yen down.

It turns out that currency intervention could be in the works for Japan. First, Prime Minister Yukio Hatoyama is growing concerned over the yen's appreciation. He was quoted saying that the government might need to take measures to curb yen strength. Second, Finance Minister Naoto Kan quipped that he is open to the option of currency intervention. Wednesday's BoJ monetary policy meeting could shed more light on this matter.

Today we'll take a look at Japan's household confidence index, which could rise from 39.0 to 40.6 in February. The index has been climbing since December last year and another uptick could provide support for the yen.

On Tuesday, the tertiary industry activity index will be released. This could print a 1.3% increase in the total value of services purchased by businesses for January, a rebound from the 0.9% decline seen in December.

As I mentioned above, the BOJ monetary policy statement will be released on Wednesday. The central bank is widely expected to keep rates at their current 0.1% level although there have been talks of additional easing measures. Better keep an eye out for that since more easing could pull the yen down.

Japan's last economic report for the week will be the BSI manufacturing index due Wednesday 11:50 pm GMT. The index could climb from 13.2 to 15.3 for the first quarter of 2010, indicating that manufacturers included in the survey are more optimistic with business conditions.

[PipDiddy]

Yowza! It was a great day indeed for the Yen bulls yesterday as the JPY staged a broad-based rally against all the other majors. The question now is… Does the Yen have enough juice to extend its win to round 2 today?

Japan’s latest household confidence index rose to 39.8 from 39.0 as the country’s labor market appears to have been showing signs of improvements. Still, the latest tally was weaker than the 40.6 estimate. The Yen lost a bit of support following the report.

The Yen, however, regained a lot ground during the start of the London session as the UK’s debt issues surfaced once again. At present, the UK is at risk of losing its AAA rating. As fears mounted, investors run back to the ‘safer’ currencies like the Yen.

Presently, the Yen is strengthening ahead of the 2-day BOJ monetary policy meeting, which will start later at 4:00 am GMT, and the Fed’s interest rate decision at 6:15 pm GMT. While both the BOJ and the Fed are expected to keep their interest rates they are, any hawkish statement by any of the two committees could be bullish for the Yen.

[PipDiddy]

The yen was unable to keep up with the Western currencies yesterday. The currency lost its appeal to currency traders and got sold-off against the dollar, the euro and the pound.

Earlier today, Japan released its tertiary industry activity report for the month of February. The report basically measures the change in the total value of services rendered to businesses. It showed an increase of 2.9%, more than twice the increase initially expected. It was also opposite the 0.9% decline seen in January.

For today, the focus of traders will turn to the interest rate decision of the Bank of Japan. Although it is widely expected that the BOJ would keep rates unchanged at 0.10%, the bank has shown concern on the yen's rising value. There was rumor going around last week that the BOJ could intervene in the markets soon and try to push down the yen's value. Remember, Japan is highly export-dependent, and an appreciation of its currency makes its exports more expensive to foreigners. If the bank talks about intervention later, we could see the yen suffer another round of losses.

[PipDiddy]

The USDJPY has been stuck in range for over a week now, as the pair didn't move from its opening price. Could we be in line for a big move soon?

The big news that came out of Japan yesterday was that the Bank of Japan doubled the size of their special lending program from ¥10 trillion to ¥20 trillion. This move was made despite the fact that BOJ upgraded its outlook on the economy for the first time since mid 2009. Some suggest that the expansion of the program was made to appease the demands of the Ministry of Finance that the BOJ fight off deflation through the use of monetary policy.

Remember, central banks increase money supply in order to stimulate the economy, which in turn should lead to a rise in consumer prices down the line. The BOJ is hoping that by providing more liquidity to the markets, this will spark inflation, which would help ease the current state of deflation that the country is going through.

With even more stimulus being added to the economy, could we see the yen drop against other majors? The initial price reaction in the USDJPY suggests not quite, but lets see how this plays out over the next couple of weeks.

Today, the BOJ monthly report is due at 5:00 am GMT. It'll probably provide information as to why BOJ officials believe that expanding the special lending program will help the economy.

[PipDiddy]

Although the yen was able to strengthen against the pound and the euro yesterday, it was unable to bust out of its range-bound movement with the greenback. In fact, the USDJPY has been bouncing between the 90.00 area and the 90.75 level for this entire week!

Japan didn't release any economic reports yesterday, leaving the yen little changed against the US dollar and Australian dollar. Today, Japan is set to release its all industries activity index at 4:30 am GMT. An increase of 1.6% is expected for the month of January, a nice rebound over the 0.3% decline seen in December. Besides, the tertiary activity index, which was released earlier this week chalked up a surprise 2.9% increase over the expected 1.3% climb. Could another upside surprise be seen for today's all industry activity index? Stay tuned!

[PipDiddy]

The Yen staged a rally last Friday against all the other majors except the dollar to close the week on a positive note. Will risk aversion surface this week to put the Yen back on the radar? We’ll have to wait and see.

Japan’s all industries activity index came in a lot higher than expected. The index rose by 3.8%, which is more than two folds of the market’s 1.6% estimate, in January. Among the index’s components, the one that rose the most was Japan’s construction sector which jumped by a whopping 17.3% following a very marginal 0.1% rise in December. The yen gained some support following the report.

This week will kick off with the release of the BOJ’s monetary policy meeting minutes today at 11:50 pm GMT. The BOJ recently doubled its quantitative easing program to ¥20 trillion ($222 billion) while holding its interest rate at a low of 0.10%. Prices are still falling in Japan at an annualized 1.8% decline in January. With the Japanese government restrained from doing more spending because of its huge debt, the pressure now is on the BOJ to do something to shore up the economy. Some economists, however, believe that the bank’s recent move will only have a minimal impact on the economy.

On Wednesday, Japan’s trade balance for the month of February will be reported. The country’s trade surplus is seen to have narrowed to ¥0.41 trillion from ¥0.73 trillion. Any decline here could further weigh on the JPY.

Japan will conclude the week with the release of the March Tokyo core CPI and the February national core CPI. Prices in Tokyo, which is Japan’s most populated city, are projected to have declined by 1.7% on an annualized basis in March. The national version of the account for February also shows a slight improvement in the change (drop) in prices. The national CPI is expected to be at -1.2% from -1.3%.

[PipDiddy]

Supported by a wave of risk aversion, the yen found itself winning out against other major currencies early yesterday. The rally proved to be short lived though, as the yen erased most of its gains once the US afternoon trading session went underway.

No data was released yesterday since Japan banks were on holiday but earlier today, the BOJ's monetary policy meeting minutes for the month of February came out. The minutes revealed that the bank, while deciding to keep rates unchanged, believes that it would have a difficult time finding a solution for falling prices.

As of the moment, deflation remains as one of Japan's biggest problems. Despite setting rates at its lowest at 0.1% and injecting a large amount of money into the economy, businesses and consumers refuse to spend, which is pushing prices down further. It looks like the BOJ is all out of moves, and has no choice but to let things just play out....

On the docket today, at 11:50 pm GMT, is Japan's trade balance. The trade balance measures the net difference in value between exported and imported goods of the country. A positive balance is also called a surplus, which means that more goods were exported than imported. The expectation is a 41 billion yen surplus for February, significantly lower than the 73 billion yen surplus in January.

[PipDiddy]

While the USDJPY remained in range for the 12th day in a row, the yen remained mixed against other currencies. The yen fell against the Australian dollar, but posted some gains against the euro and pound. What could be in store for us today?

Trade balance figures were released late yesterday, coming out slightly better than expected. Japan hit a surplus of ¥470 billion last month, just beating predictions of a ¥410 billion figure. This indicates that more goods were exported than imported. Take note however, that January's surplus was revised down from ¥710 billion to ¥650 billion.

Lately, the yen's moves have been based on sentiment in other currencies. European currencies like the euro and pound have been falling against the yen as traders as they have been plagued by issues here and there. With no high impact data on deck today, watch out for strong moves in other currencies to direct the yen's movement.

[PipDiddy]

Kamikaze! The Japanese yen dove sharply against the US dollar yesterday as risk aversion revisited the markets. As a result, the USDJPY broke out of its range and rallied to a high of 92.40 during the US session.

Despite the weak economic figures from the US and the strong trade balance from Japan, the US dollar proved to be the more preferred lower-yielding currency yesterday. Risk aversion, which resulted from Portugal's debt rating downgrade, pushed the safe-haven US dollar higher against the yen. Meanwhile, gains of the yen crosses were a bit more contained.

Only the corporate services price index was released from Japan yesterday. It printed a worse than expected annualized decline of 1.3% for February, highlighting the threat of deflation in the Asian economy.

Today, Japan will release the Tokyo core CPI and the national core CPI. Another round of year-over-year declines are expected for the month of February, with the Tokyo core CPI falling by 1.7% and the national core CPI dropping by 1.2%. This could push the yen to take another kamikaze dive today. Brace yourselves!