Daily Economic Commentary: Japan

[ForexGump]

The yen lost out on Friday against the USD, as investors reverted to dollar buying right after the NFP report was released. Interestingly, the yen also lost against the euro - possibly because investors started moving their assets to the USD? Could this mean that investors consider the USD to be more "safe"?

Over the weekend, core machinery orders data was released. Orders rose by 9.7% in June, marking the first increase in 4 months. A separate report showed that Japan's trade balance surplus widened to 1.153 trillion JPY on better exports, more specifically because of Chinese demand. As long as China keeps their robust growth, this will bode well for Japan.

Later today, we have the Economic Watchers Sentiment and Preliminary Machine Tools Orders reports due at 5:00 am GMT and 6:00 pm GMT respectively. The first report is expected to show an improvement and have a reading of 43.4, up from a score of 42.4 in June. There are no forecasts for the orders report, but if the trend from the weekend continues, we may see an improvement in this report as well.

Tomorrow, the Bank of Japan will be releasing its interest rate decision. Once again, I don't think we'll be seeing a rate cut - really, how can they cut rates when it's at 0.10% already? Given the pickup in orders we saw over the weekend, I think we may see the BOJ express some optimism that things will pick up, but at the same time, remain cautious over the state of the economy.

[ForexGump]

After bowing down to the safe-haven USD last week, the JPY was able to recover some of its losses as traders set their sights on a possibly upbeat monetary policy statement from the BOJ today. Accounting for much of the JPY strength were strong economic reports released over the weekend.

Economic data from yesterday came in worse than expected but this hardly stopped the JPY from amassing more gains. The Economy Watchers Sentiment index fell short of expectations as it scooted over from 42.2 to 42.4. The consensus was an increase until 43.4. Nonetheless, the current reading marks the best economic outlook in nearly two years.

The recent slew of strong economic data provides an excellent preview for the upcoming BOJ monetary policy statement. While interest rates are expected to hold steady at 0.1%, exit strategies from the government's asset purchase programs are expected to be on the agenda. The BOJ has already expressed its concerns against leaving these policies in operation for too long and, given the improving health of the Japanese economy, they might decide to withdraw these policies sooner than later. Also due today is a gauge of household confidence, which is projected to climb from 37.6 to 39.2.

Meanwhile, economic reports from China are also on today's docket. Economic growth in Japan's Asian neighbor translates to increased strength for the Japanese economy. China is set to report improvements in retail sales, industrial production, and fixed asset investment. Other economic releases from China include CPI and PPI. Better than expected results would have bullish effects on the JPY.

[ForexGump]

It was a day to remember for the JPY as it rallied against ALL the other majors in yesterday’s trading. Looking at the daily charts of the JPY pairs, JPY’s month long downtrend against the other currencies (except the USD) was finally snapped in yesterday’s action. Will yesterday’s movement mark the start of the JPY’s rise? Or was it just a temporary correction?

In a press conference, Bank of Japan Governor Masaaki Shirakawa said yesterday that the threat of Japan slipping into a deflationary spiral is unlikely right now. However, the BOJ remained very cautious about its outlook despite the recent uptick in the global financial markets. The bank, as expected, kept its overnight lending rate at 0.1%. It also maintained its initial view that the economy has started to ease a little bit.

The JPY surged following the statement.

Bank of Japan’s monthly report is due today at 5:00 am GMT. Market participants will look into the report for the further data supporting the bank’s latest view on the economy.

[ForexGump]

The JPY finally found resistance versus the USD and its other crosses after two days of gains in yesterday day’s trading session. The bank said in its monthly report yesterday that economic conditions have stopped worsening and is likely to turn upward in time, spurring a bit of risk-taking.

Later at 11:50 pm GMT, expect to see the Bank of Japan’s monetary policy meeting minutes. It outlines the bank’s reasons on where to set the nation’s benchmark interest rates. In addition, the meeting minutes enables the public to understand how the bank sees the country’s economic condition. Also released at the same time is the report on tertiary industry activity June-on-May. Economists predict that tertiary industry activity decreased by 0.3%. Tertiary industry activity pertains to the value of services purchased by businesses.

[ForexGump]

And the yen continues to rally. The yen gained against the dollar yesterday, as investors jumped to the yen when poor US retail sales data was released. The USDJPY pair closed trading at 95.37. The pair has dropped ever since the strong up move last Friday – will we see a correction, or will the trend continue today?

Last night the latest Tertiary Industry Activity report was released. The report measures the progress of service related business – like power, transportation and communications - in the past month. Last June, demand for services rose by 0.1%. It seems like the BOJ’s stimulus plans are working...

Speaking of stimulus plans... the minutes of the last monetary policy meeting showed that the Bank of Japan could end their economic stimulus strategies in December only if the financial markets show some improvement. At the same time, they said that further stimulus could be implemented if no improvement is seen. Clearly, the BOJ remains very cautious about the economy.

Nothing due today from Japan, but be on the look out for economic data coming from elsewhere. Good luck trading!

[ForexGump]

Hooray for Japan! The nation was finally able to climb out of the recession as it posted positive economic growth for the second quarter. The 0.9% growth in GDP came below expectations of a 1.1% uptick but, after enduring negative growth in the previous five quarters, any sign of positive growth is welcome.

Economists are quick to caution against high hopes for a full economic recovery. They pointed out that the uptick in GDP was largely a result of an increase in government spending and is only a slight rebound from the 3.7% downturn in the first quarter. Also leading the economic expansion was the 6.3% growth in exports as Japan's overseas markets show signs of stabilizing.

The GDP report, which was released Sunday, is expected to make a huge impact on the JPY price action today - and probably for the entire week. The only economic report due from Japan this week is its All Industries Activity index, which is expected to have a minimal impact on the JPY action. This report is set to be released on Wednesday and is projected to post a 0.4% increase in the total value of goods and services purchased by businesses.

The USD/JPY is currently testing previous support at 94.50. If the JPY sustains its bullish tone for the rest of the week, then the pair could breach support and continue to slide down.

[ForexGump]

It was a grand slam for the Japanese Yen as it won yesterday’s trading against all the other major currencies. Despite a weaker-than-expected growth in the Japanese economy, the JPY was still able to move forward. We have risk aversion to thank for that.

Japan’s economy surfaced above water after being drowned from its deepest post-WWII recession. Japan’s GDP registered a growth of 0.9% during the second quarter after falling miserably by 3.1% in the previous period. The growth was caused by the expansion in Japan’s exports and consumer spending. Despite the increase, stocks in Japan and anywhere in the globe fell as the result failed to meet its growth projections of 1.1%. Concerns that such gains may not be sustained rose. This prompted an across the board risk aversion in the capitals markets.

No reports are due today in Japan. We might see some correction in the JPY given yesterday’s heavy gains.

[ForexGump]

The JPY took a break from its recent rally and gave other majors a chance to catch up yesterday. With yesterday’s absence of economic data, the move was most probably a pullback from the recent strength of the JPY. The dominating market theme seems to be risk aversion so unless a major shift sentiment occurs, the JPY will remain to be investors’ "go-to-guy"!

Pretty light economic calendar today as only Japan’s All Industry Activity report for June is due. It basically measures the month-on-month change in prices businesses pay for goods and services. The report is set for release at 2:30 am GMT. Don’t expect any major market moves upon the release as most of the data the report uses has been previously released.

[ForexGump]

The yen went on a roller coaster ride yesterday, riding a strong run of risk aversion during the early sessions, before giving up much of its gains once the US session rolled around. The main catalyst was US equities gaining in the US session.

Early yesterday, the All Industries Activities report came in. It records the overall monthly change in prices businesses pay for goods and services. The report showed that the amount that companies spent on goods and services only grew by 0.1% in the month of June and not 0.4% like initially expected.

With nothing coming up for the rest of the week, the yen would probably still remain to be driven by shifts in risk sentiment. With high-impact reports coming out from the US today, we may see another wild ride for the yen today.

[ForexGump]

Price movement in most Yen pairs was a bit unsteady yesterday, except for the GBP/JPY and USD/JPY. Against the pound and the greenback, the Yen soared up like Mr. Fredricksen in his balloon-propelled house.

Just recently, Japan made its official exit from the recession when it posted a positive GDP for the second quarter. But when BOJ's Atsushi Mizuno remarked that a sustainable recovery in the Japanese economy is highly uncertain, the Yen made a slight retreat. Mizuno expressed his concern that the unstable demand from the US and the euro zone could affect Japanese exports, which are still struggling to stabilize. He also mentioned that, since deflationary pressures would continue to plague their economy, interest rates would be kept at their current 0.1% level for a long while.

Japan's economic schedule is report-free for this last day of the week. As the summer season continues to dry up the volatility in the markets, expect price consolidation to be the motif for today's trading sessions.