Daily Economic Commentary: Japan

[PipDiddy]

Finance Minister Yoshihiko Noda must be thanking his good ol’ buddy risk appetite for depreciating the yen against all major currencies yesterday. Better-than-expected economic reports across the world boosted risk appetite in markets, and brought USDJPY 106 pips up from its open price at 87.96. EURJPY, too, rocketed to a 114.36 close after opening at 112.93.

Remember that the Bank of Japan wants to prevent too much appreciation of the yen to make their exports more attractive? Well they might have gotten what they asked for yesterday when the lack of reports from the country left the yen vulnerable to positive reactions from euro zone’s consumer confidence data and UK’s CBI report.

Of course, it doesn’t mean that headaches are over for the BOJ officials. After all, they still have to deal with the 21st consecutive monthly drop of the Corporate Services Price Index released last Monday.

Will the annualized retail sales report today at 11:50 pm GMT reflect any improvement in their economy? The data for June is expected to increase by 3.3% after May’s 2.8% rise, but a better-than-expected figure might be good for the country’s deflation problems.

[PipDiddy]

Move, get out of the way, the Yen’s coming through! Yesterday’s price action saw the Yen bully around all of the other major currencies as risk aversion struck the markets. USDJPY fell 52 pips from its opening price and landed at 87.97.

Fears over a global economic slowdown, together with weak US economic data led investors to buy up the safe-haven currency.
But the Yen received plenty of support domestically as well. As expected, its June retail sales report showed an annualized growth of 3.2%, accelerating from the previous month’s annualized pace of 2.8%.

Will today’s releases be just as positive?

At 11:30 pm GMT, Japan will publish its unemployment rate for the month of June, which is highly expected to remain at 5.2%. Keep an eye on this one as it could lead to a Yen bull run if results come in better than expected.

At the same time, the household spending report is scheduled for release. Analysts believe consumer spending fell 0.9% in June, just as it dropped 0.7% in May. But given yesterday’s healthy retail sales figure, we may be in for an upside surprise which could strengthen the Yen even more.

Following up at 11:50 pm GMT is the June preliminary industrial production data, which is anticipated to reveal that industrial output increased by 0.2% in June, double the pace of May. As usual, better-than-expected results can trigger a Yen rally, so stay sharp!

[PipDiddy]

Hah! Who’s the weakling now?!? Last Friday the yen won the battle of bad economic data after worse-than-expected reports across the oceans weighed heavier than Japan’s own disappointing data. Risk aversion sent the traders to the low yielding yen, and pushed USDJPY 45 pips lower than its open price at 86.39. Meanwhile, EURJPY fell 121 pips from its 113.80 intraday high at 112.59.

Mixed data from Japan last Friday should’ve made the traders cautious after the annualized household spending increased by 0.5% in June, but the core CPI dropped by 1.3% in July, unemployment rate swelled to 5.3%, and industrial production fell by 1.5% after May’s 0.1% growth. These data suggested that Japan’s deflation problems might be around longer than officials thought.

But the big drop in German retail sales and the US GDP was just too glaring to ignore. The disappointing data reminded traders that the world’s biggest economies are far from declaring victory against recessionary pressures, which sparked another round of risk aversion in markets.

Will today’s data make more impact on the yen’s moves? The annualized cash earnings is scheduled today at 1:30 am GMT. A better than the expected 0.7% growth might be good for the economy since higher earnings can translate to more consumer spending.

[PipDiddy]

“Risk aversion was so yesterday,” said the currency bulls after they dropped low-yielding currencies like the yen following the better-than-expected reports around the world. USDJPY gained 21 pips at 86.47 after an intraday high of 86.89, while EURJPY headed straight for 113.89 from its 112.68 open price.

It seemed that all eyes were on high-yielding currencies after euro zone and UK’s manufacturing PMI printed higher than analysts expected and inspired another round of risk rally in markets.

Japan did release their own positive report, but the fourth straight rise in average earnings shown by June’s 1.5% increase did little to boost the yen after the data reflected that employers added more hours to workers instead of adding payrolls. Talk about deceiving! Ha!

Will the yen gain the bulls’ attention today’? No reports are scheduled for release, but keep an eye out for any statement that could affect risk appetite!

[PipDiddy]

Sayonara, Yen bears! The bulls are taking over! The Yen took control of the charts yesterday, pushing USDJPY down to an 8-month low to close at 85.83 from its opening price of 86.47.

Although no reports were published in Japan, that didn’t stop the Yen bulls from doing their thing! They found plenty of fuel for their rally from the disappointing US economic data.

That doesn’t mean all is well in the Land of the Rising Sun! Signs of economic slowdown in China and the US could negatively impact Japan as well, since these two giants are Japan’s biggest trading partners. But Finance Minister Noda’s offered soothing words in his speech yesterday, saying the government will be more actively involved in trying to stimulate growth to ensure Japan’s recovery.

Since the Japanese press will be silent again today, set your eyes to the west where the US is set to publish its ADP employment survey and ISM non-manufacturing PMI. If the results of these reports come out disappointingly, Yen bulls could be in for an extended rally.

Still, it’s best to be careful out there, kids! The Bank of Japan has been very vocal about not wanting the Yen to appreciate too much in order to protect their exports from becoming too expensive in global markets. They might do a bit more jawboning or maybe even intervene if the Yen continues to forge new heights.

[PipDiddy]

Whew, that was a close one! The BOJ can rest for another day as yesterday’s yen weakness lessened pressures for a currency intervention. Positive economic reports enabled the yen to drop by 44 pips against the dollar at 86.27. Meanwhile, EURJPY and GBPJPY pared off their losses from earlier in the day at 113.57 and 137.13 respectively.

Remember that the BOJ prefers a weak yen because a cheap currency would make their exports more competitive, and might help keep the Japanese economy from deflationary pressures.

Will the threat of a strong yen come back to trouble the BOJ like Plankton plagues Mr. Krabs in Spongebob Squarepants? Watch out for the red flags that could affect risk appetite! We might see a lot of excitement today with BOE and ECB’s interest rate decisions and the US unemployment claims on tap between 11:00 am GMT to 12:30 pm GMT. Don’t let me catch you snoozin’!

[PipDiddy]

“Look, no hands!” Like kid showin’ off his biking skills to his momma, the yen proved that it can gain against the majors without publishing any report. USDJPY dropped 46 pips from its open price at 85.82, while EURJPY ended the day at 113.20 after reaching an intraday high of 113.91.

In his conference yesterday, ECB President Jean Claude Trichet gave glowing reviews about the euro zone’s growth, and said that it was growing faster than many expected. Too bad this didn’t do much for risk appetite, especially after the BOE kept their raise interest rates at 0.5%, and the US unemployment claims disappointed expectations.

Today Japan only has its leading indicators for June on tap at 5:00 am GMT, but a couple of red flags are up ahead in other regions, including the big NFP report for the US. Will we see markets running for cover towards the low-yielding yen? Trade carefully!

[PipDiddy]

With the way it flexed its muscles last Friday, I’m betting the yen is on some crazy steroids! Give me some! Just kidding, I’m already buff enough! To end the week, USDJPY dropped massive pips, falling from its daily opening price of 85.82 to reach an intraday low of 85.02.

Even though no hard-hitting releases were made in Japan, the yen was able to make large strides uphill thanks to the dollar’s weakness. With the worse-than-expected US non-farm payroll data, the yen looked even more attractive to investors. But not as hot as you, Queen Cleopiptra! Yowza!

USDJPY is now flirting dangerously with the 85.00 handle, the level at which the Bank of Japan (BoJ) had previously warned they would intervene. Hmm… Does this mean they’ll be stepping in soon?

We’ll have to wait until Wednesday when the BoJ holds its press conference during the Asian trading session to get more clues. Keep your eyes glued to the tube for any jawboning or dovish remarks that could spark a yen bear run!

At 11:50 pm GMT of the same day, the June key machinery orders report is set to show a 5.4% growth, following the 9.1% decline in May. Key machinery orders is usually treated as a main indicator of corporate spending in the coming months, so look out for a yen rally if June posts better-than-expected figures!

[PipDiddy]

The yen turned out to be the biggest loser in yesterday as it lost out against most major currencies. The USDJPY, GBPJPY, EURJPY, AUDJPY, and even the CADJPY were able to post gains in yesterday’s trading session.

Does this mean that the buy-the-yen trend is over? Hah, you wish! With the majors unable to post new significant highs against the yen, I suspect this is simply a retracement ahead of the Bank of Japan’s interest rate decision and traders will be keen on selling the yen crosses at better prices.

Still, keep an ear out for the BOJ’s accompanying statement… If the BOJ starts talking about currency intervention to weaken the yen, then we just might see that reversal on the yen crosses that the bulls have been waiting for…

[PipDiddy]

The Japanese yen flexed its muscles yesterday and strengthened against its major counterparts. At the end of the day, USDJPY closed at 85.80 after tumbling from a peak of 86.24.

Upbeat comments from BOJ officials lifted the yen's spirits yesterday. According to them, the Japanese economy stayed resilient to yen strength as corporate profits continued to improve. Although they pointed out that their currency's persistent appreciation presents a downside risk to their economy's recovery, they also promised not to make any drastic intervention moves unless the rising yen threatens to push Japan back into recession. BOJ policymakers decided to keep rates unchanged at 0.10% and maintain their current assessment and outlook for the Japanese economy.

The core machinery orders, which came in weaker than expected, failed to douse the yen's advance since it still printed a rebound over the 9.1% decline seen previously. Core machinery orders were up by merely 1.6% in June, much less than the 5.6% projected increase, as the rising yen cooled demand for Japan's products. Yikes, would this report convince the BOJ to be more watchful of the yen's advance?

Japan won't be releasing any high-impact reports today. Only the BOJ monthly report is due and this could shed more light on the underlying figures that convinced the central bank to keep rates on hold for another month. Stay tuned for that at 5:00 am GMT.