Daily Economic Commentary: Japan

[PipDiddy]

Nothing went right for the JPY yesterday as it went through another broad-based beating. The only people who were partying were the yen-bears. Will we see another round of yen whipping today or will the bears cash in their profits to end the month?

Yesterday, Japan released its Tokyo and national CPI figures. Tokyo, which is the most populated city in Japan, registered a worse-than-expected inflation number. March’s Tokyo CPI remained at -1.8% versus the markte's estimate of -1.7%. February’s national CPI, however, recovered somewhat to -1.2% in February from -1.3%. In any case, Japan remains to be deep in deflation.

Some economists project that Japan will stay in a deflationary environment until 2013. Let’s see if the recent move of the BOJ to double its lending program could spark domestic consumption in the months ahead.

If you want to learn more about Japan's present situation, my friend, Forex Gump, wrote an article about it yesterday. Kindly check it here.

Japan’s economic calendar is report-free today. Since it is the end of the month, the JPY short sellers could cover their positions and cash in their profits.

[PipDiddy]

Due to the lack of economic news from Japan, the yen was unable to find direction last Friday. The currency managed to gain against US dollar but lost out versus the euro and the pound.

Earlier today, Japan released a pretty impressive retail sales report. The report revealed that retail sales in February rose by 4.2% year-on-year, more the double the initial prediction. The increase was also an improvement from January's 2.3% and is the biggest increase since March 1997. Hmmm, it looks like all the stimulus measures are finally taking into effect...

Looking further ahead the day, we will see Japan's reports on unemployment, household spending and preliminary industrial production. All of them will come out at 11:50 GMT tonight.

The expectation is that Japan's unemployment rate in February remained at 4.9%. Meanwhile, the household spending report is predicted to gain by 1.5%, slightly lower than the previous month's 1.7% increase. Lastly, the preliminary estimate on industrial production covering the same period is a drop of 0.5%.

On Wednesday, the Tankan manufacturing index is due. The index, which assesses whether Japan's manufacturing industry is growing or not, is predicted to print a reading of -14 for the first quarter of this year, better than last quarter's -24. Although an improvement, the reading is still below the base line 0, which means conditions in Japan's manufacturing industry is worsening. Given all of Japan's “headaches,” better-than-expected results on the report could just be what the yen bulls need.

[PipDiddy]

Yen crosses took some hits in yesterdays trading rounds, as higher yielders benefited from a run of risk appetite. The EURJPY and GBJPY both saw themselves floating slightly higher. Could we see the same today? Or will the yen strike back?

Japan was hit with some poor economic data yesterday, as both the household spending and industrial production reports came in worse than expected. Household spending fell by 0.5%, after it was expected to have risen by 1.5%. Meanwhile, industrial production fell by 0.9% - consensus was for a decline of just 0.5%.

The labor market got some good news... well, good news in the sense that the unemployment rate didn't go up! The jobless rate remained at 4.9%, which was in line with expectations.

No biggies coming out of Japan today, but that doesn't mean you shouldn't be on the lookout for data coming out from other counties! Watch out for shifts in risk sentiment, as this has been what's driving the yen as of late.

[PipDiddy]

The Japanese yen wasn't in such a good mood yesterday as it fell against most of its counterparts, except for the euro. It seems like the yen still hasn't moved on from the brunt of weak economic figures released earlier this week.

Only the manufacturing PMI was released from Japan yesterday. The report showed that the industry continues to expand as the reading stayed above the 50.0 mark. Still, the March manufacturing PMI dipped to 52.4 from 52.5 in February, implying that the expansion was slower during the month.

Does this mean that weak Tankan figures are in the cards? The Tankan survey, which is due 11:50 pm GMT today, could show that manufacturing and non-manufacturing conditions remained weak for the first quarter of the year. Although the readings are expected to stay in the negative zone, both the manufacturing and services component of the survey are expected to show that business conditions are worsening at a slower pace this time around.

My buddy Forex Gump has an interesting blow-by-blow analysis concerning the possible results of the Tankan survey, saying that weaker than expected figures could push the USDJPY above the 93.00 handle. Keep an eye out for that!

[PipDiddy]

Risk appetite in the forex market drove the yen back on the sidelines yesterday. The yen slipped flat on its face against all of the other major currencies. Will it be able to recover some of its losses today? We’ll see.

Japan’s Tankan manufacturing index for the first quarter of 2010 improved to -14 from -24. The non-manufacturing version of the account also improved to -14, which is slightly better than the -15 consensus, from -22. A negative reading indicates a deteriorating condition in the sector. Despite this, the yen still managed to gain some support soon after the results were released because of a better than expected tally in Japan’s service sector. However, traders just took this as an opportunity to get a better price to sell the yen again. The yen continued to drop after due to the persistence of risk appetite in the market.

Later, BOJ Governor Masaaki Shirakawa will deliver a speech at the Bank of Japan. Any dovish statement there could send the yen lower. I doubt, however, that he would drop any hints regarding the bank’s future monetary policies since he will be speaking at a welcoming ceremony of new bank employees. Still, be on your toes!

[PipDiddy]

The yen proved to be the biggest loser in last week's trading sessions, falling in value against most major currencies. It looks like improving risk appetite will continue to put downward pressure on the yen's value.

The only high-profile economic news to watch out for this week from Japan is the BOJ's interest rate decision. It is widely expected for the BOJ to keep the benchmark interest rate unchanged at 0.10%, so the focus of traders would probably fall on the accompanying statement. If the bank decides to expand its quantitative easing program, then we could see the yen experience further losses. The BOJ will announce its decision on Wednesday.

[PipDiddy]

For the first time in a week, the yen was able to slice the dollar like a sushi roll, as it posted some decent gains. Some see this as a technical correction given the strong upmove we have seen the past couple of weeks. Could this be an opportunity for traders to get in at a cheaper price?

No biggies coming out today, so watch out for news coming out from other countries. If risk appetite that was triggered from last week's NFP report finally follows through, the yen may just give back its gains from yesterday.

Tomorrow should be more exciting, as the Bank of Japan will be making its interest rate statement. Remember, in its last monthly meeting, the central bank decided to expand quantitative easing measures. This month, traders will be waiting to see how upbeat the bank will be in their statement. If BOJ officials show more optimism and actually crack a smile or two, it may just give the yen more support.

[PipDiddy]

The yen managed to squeeze some gains off the greenback, euro, and pound ahead of the release of the BOJ's monetary policy statement. Strong economic figures also provided a boost for the yen, which closed at 93.89 against the greenback.

Japan's composite set of leading indicators stepped up from 96.9% to 97.9% in February, marking its longest streak of gains since 1997. Whee! The recent improvement in Japan's broadest measure of economic performance was led by a recovery in export demand. Components of the report showed that the surge in exports is starting to trickle down to employment and consumer spending, boosting Japan's overall economy. Maybe this could lead the central bank to upgrade their growth forecasts for the year...

The BOJ has yet to release their monetary policy statement and hold a press conference probably later today. Keep an eye out for upbeat comments from central bank officials, which could allow the yen to push for more gains. Even though the BOJ is widely expected to keep rates at 0.1%, if they end up delivering a more bullish statement than the US Fed's skeptical one yesterday, the USDJPY could make a mad dash for the 93.00 handle.

[PipDiddy]

The yen dominated the FX market yesterday, banking a landslide win against ALL the other major currencies. Will the yen be able to extend its run?

Yesterday, the Bank of Japan kept its interest rate unchanged at 0.10% but also stated that the economy is already picking up. The improvements in the economy was said to have been due to the positive developments in some of its major trading partners. Domestic demand in Japan, however, is still fragile which places some pressure on the BOJ to hold its monetary easing policies.

Across the Pacific, the US consumer credit showed an unexpected drop of -$11.5 billion in February. A slide in credit indicates that consumer demand is not yet stable. Risk aversion, as a result, intensified which led investors back to the safety of the greenback and the yen.

Japan’s February core machinery orders also slid by 5.4% after already losing by 3.7% during the month prior. A drop here suggests that firms weren’t spending for capital expansions despite the increase in Japan’s exports. And soon after the result was released, the yen lost some support.

Japan will be releasing the BOJ's monthly report and the Eco Watchers survey in March later at 5:00 am GMT. The BOJ recently stated that the economy is already improving but some data like the core machinery orders shows otherwise. In any case, any hawkish outlook could further lift the yen.

[PipDiddy]

It looks like the yen's massive correction has finally come to an end as it ended the day with a loss in yesterday's trading session. The yen fell against the dollar, the pound and the euro.

The Bank of Japan's monthly report released yesterday showed that was slightly more optimistic though. It revealed that the bank believes that financial credit conditions have eased due to their very accommodative monetary policy. Additionally, the bank said that deflation will soon moderate as demand for Japanese goods start to pick up.

No important data from Japan today so the yen would most likely be driven by risk sentiment flows and economic news coming out from other major economies, particularly Ben Bernanke's speech at 12:30 am GMT today.