Daily Economic Commentary: Japan

[PipDiddy]

The yen was the only major currency that was able to hold off the mighty USD yesterday. From its opening price of 85.35, USDJPY dropped to as low as 84.73 before it rose to close at 85.39.

The main event in the Land of the Rising Sun yesterday was the Bank of Japan’s monthly report, which maintained its slightly optimistic outlook for its economy. They’re expecting a moderate recovery, with exports, production and private consumption picking up, but are still worried over the yen’s appreciation.

They’re afraid that if the yen strengthens even more, it will hurt their export industry by making Japanese products more expensive in global markets. In the past, Japan has resorted to jawboning to keep the yen from gaining. But since it has been a long time since the markets saw an actual intervention, analysts are beginning to question the effectiveness of these seemingly empty threats.

Today, we’ll see what Japanese officials have to say when the minutes of their most recent monetary policy meeting will be published at 10:50 pm GMT. Watch out for this one because it could provide you with valuable insight about where the BoJ sees its economy going and what it plans to do in the future.

[PipDiddy]

As my dad always says, “Try and try until you succeed!” Once again, buyers tested the 85.00 handle yesterday, but failed to push USDJPY past the significant support as the pair settled 51 pips higher at the end of the day.

The yen was weak across the board yesterday, thanks mostly to comments made by Japanese officials. Finance Minister Noda said that they will be closely watching currency market movements with great interest. A bit of jawboning, eh?

Are they merely crying wolf or do they really mean business this time? After all, the BOJ hasn’t intervened since 2004! Rumor has it that Japanese authorities might ease monetary policy further,instead of selling truckloads of yen in the markets, to keep the yen from appreciating. In any case, their threats weren’t taken lightly and were enough to scare buyers away yesterday.

Don’t expect any economic reports in your inbox from Japan today. The Japanese press is off to an early weekend! However, it would be wise for you to check out the US CPI and retail sales reports coming out at 12:30 pm GMT. Those high-impact releases could rock USDJPY!

[PipDiddy]

It seems like the BoJ’s intervention talks are scarier than the Cryptkeeper’s ghost stories. Just check out how the yen continued its losing streak against the dollar last Friday! After reaching an intraday low of 85.57, USDJPY scrambled up the charts and peaked at 86.38. It ended the week at 86.29 with the yen sustaining a 39-pip loss.

So what was new with the yen’s intervention horror story?

Well, word in the market was that there were more than 100 members of the Democratic Party of Japan urging finance minister Yoshihiko Noda to intervene. On top of that, the minutes of the latest BoJ meeting showed that the central bank is worried about the currency’s strength. Aaack!

And it didn’t stop there. A report also showed that consumer confidence in the country continues to decline. Uh oh. The Cabinet Office announced last Friday that the consumer confidence index fell short of the 43.9 forecast at 43.3 in August and worse than the previous reading which was at 43.5. This combo probably spooked away currency traders from the yen as it made the possibility of an intervention more rational, as it seemed like the improvement in the country’s industrial sector in July to -1.1% from June’s -1.5% reading, didn’t boost the yen.

Boo! It looks the traders will still have their intervention goosebumps today. Earlier, Japan’s preliminary GDP figures showed that the economy grew at a slower pace in the second quarter. It printed at 0.1%, missing the forecast which was up at 0.6% and the previous reading at 1.1%. Adding to that is the Tertiary Industry Activity Index for June which disappointed the 0.0% forecast by printing at -0.1%.

Duhn, duhn, duhn, duhn! We don’t have anything on tap for the yen until Wednesday with the METI’s leading indicators report. So, be on your toes for more intervention talks!

[PipDiddy]

“I played you like a fool!” said the yen to the Greenback. It made a sucker out of its American counterpart during yesterday’s trading sessions as USDJPY dropped massive pips. It fell from its opening price of 86.10 and finished off at 85.33.

In spite of the worse-than-expected GDP figures which revealed that Japan’s economy grew just 0.1% in Q2 2010, well below forecasts for a 0.6% growth, the yen was able to rise against all of the other major currencies.

Some say the weak GDP data could give the BOJ more reason to weaken its currency. After all, China just overtook Japan as the world's 2nd largest economy! In any case, many are attributing its recent strength to low US yields, which causes the yen to look even more appealing to investors.

Today will be another quiet one in the Land of the Rising Sun. So for now, keep an eye out for risk sentiment because if it goes sour, another yen-buying frenzy could ensue. But be careful! The BOJ might just act on their threats of an intervention soon!

[PipDiddy]

Though no reports were published in Japan yesterday, a decline in Japanese stocks and words from the BOJ caused the yen to weaken… Just like kryptonite to Superman! USDJPY rose from an intraday low of 85.12 to hit a high of 85.68 before closing at 85.49.

Stocks dropped like hot potatoes in Japan yesterday as the Nikkei 225 stock average plunged to a nine-month low. It seems investors are starting to worry about the country’s economic recovery, causing them to sell off riskier assets such as equities.

In other news, BOJ Governor Masaaki Shirakawa and Prime Minister Kan scheduled an emergency tea party to talk about the yen’s recent gains. They’re looking more and more worried over their currency’s strength which is threatening to weaken their export industry. Is the central bank ready to step in?

Hmm... Maybe not yet. Sakakibara, Japan’s former top currency official said in a press conference that the US doesn’t want the BOJ to intervene. The problem for Japan is, without the backing of the US, the intervention efforts will probably just fail. What a dilemma!

The newswires will be quiet again today. In the meantime, be sure to get a good grasp of risk sentiment. The yen tends to rise in times of risk aversion, so stay on your toes!

[PipDiddy]

Talk about a neck-and-neck competition! After the bulls hustled USDJPY to a peak at 85.69, the bears stepped up their game and brought the pair down to its intraday low of 85.19. But the bulls weren’t ready to give up just yet. They went for another rally and settled USDJPY at 85.46, only 3 pips lower from its opening price.

There was nothing on tap for the yen so the bears just moved according to the market’s risk sentiment. The currency gained against its higher-yielding counterparts although it wasn’t able to punch as much pips out of them as before.

Hmmm, I guess it’s safe to say that risk aversion has somehow toned down but it’s still in the market, lurking... just waiting for the right opportunity to haunt ‘em bulls.

Anyhoo, earlier today the yen lost its ground against the dollar because of reports that the BoJ has started considering additional easing steps to counter the currency’s strength. Uh oh… is an intervention on the yen’s horizon? I think investors won’t be dumping the currency like a hot potato just yet... Well at least not until they know exactly what the central bank is going to do.


However, the Industry Activity report from the Ministry of Finance at 12:30 may affect their decision. It is expected that production in the industrial sector of the country fell by 0.3% in June. If the figure prints worse than expected, the bears may lose their upper hand as this would just give the BoJ another reason to halt the yen’s gains.

[PipDiddy]

After falling slightly during the Asian session, the yen turned out to be the currency of choice of traders when a wide-reaching case of risk aversion hit the markets during the US trading session. USDJPY had gone as low as 85.00 before it settled at 85.41 by the end of the day.

The primary cause of the risk aversion wave was weaker-than-expected US data. The initial jobless came out above forecast and rose to 500,000 from an upwardly revised figure of 490,000 last week. At the same time, the Philadelphia Fed Survey ticked down to -7.7, opposite the 7.2 reading initially expected.

There’s isn’t anything on Japan’s economic cupboard today, so we could see the yen exhibit some range-bound behavior. Keep an eye on those previous day highs and lows, as we could see them hold!

[PipDiddy]

Due to the absence of any significant economic data, yen trading was as mixed as a bag of nuts last Friday. The currency managed to post some gains against the euro but was unable to do so versus the dollar. USDJPY ended the day with a 33-pip win while EURJPY closed 53 pips lower.

Looking forward, Japan’s economic cupboard this week presents no real event risk again so we could see price action remain muted. Still, keep an eye out for price action during the release of the country’s trade balance (Tuesday, 11:50 pm GMT), unemployment reports (Thursday, 11:50 pm GMT) and consumer price index (Thursday, 11:50 pm GMT) for potential trade setups.

While it may be true that the upcoming reports aren’t usually watched by traders, it doesn’t mean that they won’t be creating any volatility. Risk sentiment can change on a dime, especially nowadays as liquidity is low. Stay safe, folks!

[PipDiddy]

The yen starred as the pip-ranha of the charts yesterday as it munched on pips at the expense of its counterparts. It gained 84 pips from the euro, 50 pips against the Pound and 34 pips from the dollar as USDJPY closed at 85.26. What spurred the yen into a pip-frenzy yesterday?

Well, there was risk aversion that might have sent traders running for the yen and then there was also the little chitchat that Japanese Prime Minister Naoto Kan had BoJ Governor Masaaki Shirakawa.

Everyone had been looking forward to the policymakers’ dialogue to see if a currency intervention is needed in order to tame the yen’s strength. Much to the bears’ delight, Chief Cabinet Secretary Sengoku, said yesterday that Kan and Shirakawa didn’t even mention the word intervention. Whoohoo!

However, he did not say if the government will implement monetary easing, which may have a kryptonite effect on the yen in order to spur economic growth. Hmm, I guess we’ll just have to keep an ear out for updates on that.
See if the yen will be able to keep its pip-ranha status on the charts with today’s reports.

At 11:30 pm GMT, we’ll see if Japan exporters kicked butt in July. The trade balance report is expected show that exports outpaced imports by 47 billion JPY, which is lower than the June’s 69 billion JPY figure. I think the differential has probably something to do with the yen’s strength, don’t you?

We’ll also have the Corporate Services Price Index which is considered as an indicator of inflation. It is expected that corporations paid less for services they purchased by 1% in July. Uh oh, a negative reading could add more worry about Japan’s deflation.

[PipDiddy]

Risk aversion transformed the yen to Pipzilla yesterday as it stomped pips out its counterparts on the charts. USDJPY crumbled to its 15-year low at 83.61 before ending the day at 84.12, giving the yen a 111-pip win. And it’s winning streak didn’t end there! It also gained 132 pips against the euro and 303 pips from the Pound, yowza!

Will the yen continue roaring with pips today? Probably, given the market’s risk averse sentiment and the surprising upside in Japan’s trade balance. There were reports released earlier saying that the BoJ may step in to intervene despite Chief Cabinet Secretary Sengoku’s announcement that Prime Minister Kan and BoJ Governor Shirakawa didn’t think that directly meddling with the markets was an option. But with exports outpacing imports by more than 80 billion JPY in July and beating the market’s forecast of 47 billion JPY, the BoJ may be convinced to stick with its no-intervention stance.

We don’t have anything on tap for the yen today but we do have quite a handful for its counterparts. So watch out for em! If their actual figures come in lower than expected, the yen may just continue pip-rrorizing its counterparts!