Daily Economic Commentary: Japan

[ForexGump]

It was a week to forget for the JPY last week as it lost further support against the other majors. Driven by better-than-expected US corporate earnings and economic updates, higher yielding assets such as the AUD, EUR and GBP surged against the JPY. If there’s any consolation, the JPY managed to have a meek recovery to end the week last Friday as investors showed a little tentativeness over the market.

Japan’s all industries activity for the month of May was released last Friday. The rise in the index unexpectedly slowed to 0.7% after climbing by 2.6% in April. The consensus was for a 1.0% jump. Though, this report did not really have a big impact in affecting the JPY’s movement.

The JPY lost ground during the second part of the Asia session until the start of the US session. Risk appetite remained to be the main factor that pulled the JPY down. Investors, however, were not as encouraged in the markets when the US trading session opened. Perhaps they took that as an opportunity to cash in their weekly gains since no major economic update were due in the US that could propel the higher yielding assets further up. The capitals markets ended the session mixed. The JPY was able to gain some support.

No top tier economic reports are due in Japan today. In the US, data on new home sales in June will be published at 2:00 pm GMT. Any increase in the figure would be bearish for the JPY since such would induce risk tolerance. The figure is expected to have expanded to 354,000 from 342,000. The JPY may weaken versus the others in anticipation of the report.

[ForexGump]

The JPY extended its losses in yesterday’s trading session as investors sought higher-yielding assets. Will investors continue to sell the JPY in favor of higher yielding assets to satiate their appetite for risk this week? Given how the JPY pairs are approaching their respective previous month highs and today’s relatively light economic calendar, it seems that some consolidation is in the cards for the JPY. Still, predictability is not something the FX market is famous for so watch out!

On Japan’s economic calendar, we’ve got the June report on retail sales at 11:50 pm GMT. Since consumer activity makes up as much as 70% of a country’s economic activity, economists tend to watch the report as it gives an insight people’s spending habits. Japan’s retail sales has been consistently showing decline for nine consecutive months now and analysts predict that June’s figure will be no different. They said that sales probably fell again by 2.5% in June.

[ForexGump]

Yatta!!! That’s Japanese for I did it! The yen rallied impressively yesterday, making strong gains against the USD and EUR during the latter sessions of the day. The USDJPY closed at 94.57 while the EURJPY dropped around 300 pips after testing the 136.00 handle! The pair eventually closed at 134.02. Does this signal the end of the recent rally? Or will traders see it as a pullback and as an opportunity for further yen selling?

Retail sales have fallen by 3.0% from a year ago, as sales fell for the 10th straight month. Continuing job losses and wage cuts are forcing consumers to cutback on spending. Even though economic conditions are slightly improving, economists believe that sales will not pick up until labor conditions finally stabilize.

At 11:50 pm GMT, preliminary industrial production data will be available. The data is expected to show that industrial production rose by 2.5% from May to June. Take note that May’s figures were revised down from 5.9% to 5.7%. Could we see a worse than expected figure come release time?

[ForexGump]

The USD/JPY staged another rebound yesterday as risk aversion brought back demand for the safe-haven USD. Yen crosses were driven lower as Japan's industrial production failed to meet expectations of a 2.5% increase.

As US durable goods orders posted a 2.5% downturn, the USD/JPY made its way above the 95.00 mark. The pair is currently tiptoeing around that area at the moment as it braces itself for more hard-hitting economic data from both the US and Japan. Another increase in US weekly jobless claims could pull the USD/JPY to new heights as risk aversion plants its feet on the market.

For Japan, the load of economic reports expected today could dictate the price action for JPY crosses. Manufacturing PMI is due at 11:15 pm GMT. An improvement over the previous reading of 48.2 would be positive news for the JPY. Household spending data, which is due at 11:30 pm GMT, is expected to be up by another 0.3%. Tokyo core CPI, which is due also at 11:30 pm GMT, is projected to post a 1.7% drop in consumer price levels. Core CPI for the entire Japanese economy is expected to mirror this decline in price levels. Lastly, labor conditions are predicted to deteriorate as unemployment rate could climb from 5.2% to 5.3%.

[ForexGump]

The JPY was beaten to a pulp by several Yakuzas as it was going down the Bento alley. The gang was not just going to let the JPY walk down the alley owned lock, stock and barrel by the rival group without a scratch. The JPY found itself bleeding at the end of yesterday.

Several economic updates were released in Japan yesterday. One of which was Japan’s manufacturing PMI. Japan’s manufacturing PMI rose to 50.4 from 48.2 but investors didn’t take much notice on it. Tentativeness came in when Japan’s household spending for June gained only by 0.2% after rising by 0.3% during the month prior. The consensus was for a 0.3% advance. Moreover, both the Tokyo core CPI and the national core CPI dropped by 1.7% after already falling by 1.3% and 1.1%, respectively. Another thorn came in the form of Japan’s unemployment rate which jumped to 5.4% from 5.2%. Unemployment was only expected to rise by 5.3%.

The not-so-good results in Japan coupled with risk appetite in the US and European markets placed a downward pressure on the JPY.

No top tier economic reports are due in Japan today. The JPY may get another beating if the US advance GDP surprises us to the upside.

[ForexGump]

Despite poor results from Japan’s housing starts report, the JPY was bought up furiously last Friday. The prime cause was better than expected advanced GDP that came out from US. This pushed traders to diversify their portfolios away from the USD and seek another “safe-haven” currency, the JPY. The USDJPY pair dropped almost 100 pips in the two hour span following the US GDP release during the US session.

Japan’s report on June average employee earnings just released indicated that employment conditions in the country still remain bleak. It printed a 7.1% decline, almost double the -3.6% consensus. It seems that Japan’s economic health continues to be in a depressing state even as other G7 nations report that things have begun to be “less bad.”

No high market impact economic data scheduled for release this week from Japan so the JPY’s price action would most likely be largely driven by degrees in risk appetite and technical analysis once again. In any case, expect to see the report on Japan’s monetary base y/y later at 11:50 pm GMT. Economists predict a 6.8% growth in the total quantity of JPY in circulation and deposits held at Japan’s central bank.

[ForexGump]

Once again, the yen got beaned on the head by a stray foul ball, posting losses versus the USD and EUR yesterday. After posting some nice gains versus the USD on Friday, the yen fell and the USDJPY pair jumped right back up, closing the day at 95.33. At the same time, the EURJPY rose and hit a new high, breaking past last week’s high and tested levels near 137.50 before eventually closing 137.39. Will traders have any mercy for the yen this week?

A report released yesterday indicated that Japan's monetary base rose for the 11th straight month, as it increased by 6.1% in July. This reflects the BOJ's efforts of economic stimulus to help boost the economy. Still, the economy has been plagued by unstable labor conditions. As long as this continues, it may not matter how much money is being circulated as consumers are simply holding back on spending.

Not much else coming out for the rest of the week, with only the Leading Indicators index due on Thursday. The index is expected to have improved from a reading of 76.9% in May to 78.9% in June. Despite the improvement, I dont think traders will find this enough reason to buy up the yen. It is sentiment that is driving the market right now, so be on the look out for news coming out from the US to dictate the direction of yen trading in the meantime.

[ForexGump]

The Yen started the day charged with enough energy to recover some of its previous losses. Demand for higher-yielding currencies gained the upper hand in the end as US economic reports pumped up risk appetite.

As the US posted a 3.6% uptick in pending home sales, safe-haven currencies such as the USD and the JPY were dumped along the way. Combined with modest improvements in other major economies, the upbeat reports from the US whet the appetite of risk-hungry investors.

Japan's economic calendar is relatively light for the remainder of the week, with Thursday's release of the leading index on the agenda. But don't dismiss the possibility of seeing fireworks in the JPY pairs' price movements. Economic reports from the US point towards a modest recovery and this could fuel the ongoing Yen sell-off.

[ForexGump]

The JPY was mixed in yesterday’s trading as it encountered some major support at some notable psychological round levels. The Yen was pretty much ‘boxed’ throughout the day. Based on the short term price movements (1 hour), the JPY appears to be poised for a positive upswing.

No economic updates were held in Japan yesterday. The Yen gained a little ground during the US session when both the ADP non-farm employment change and ISM non-manufacturing PMI showed worse-than-expected results. Investors fled back to the safety of the JPY and the USD as risk tolerance in the capitals markets dwindled.

Japan’s leading index for July will be reported today at 5:00 am GMT. The index is expected to rise to 79.7 from 76.9. A movement higher in the index is known to precede a consequent development in Japan’s economy. Such could then reflect well on Japan and the JPY at least in the short term.

[ForexGump]

The JPY’s tone was generally reserved all throughout yesterday as it just moved side wards with a slight bias to sell. Traders still remain cautious in letting go of the JPY as it is considered a safe-haven currency.

Japan’s trading day yesterday was also uneventful as only the leading index was released. The report tries to predict the direction of the nation’s economy in the next six months through the use of 12 economic indicators. It hardly has an impact on the foreign exchange markets though (as evidenced yesterday) because most of the indicators used have been previously released.

For today, the country’s calendar will be barren but expect to see the country’s current account balance and core machinery orders on Sunday at 11:50 pm GMT.