Daily Economic Commentary: Japan

[ForexGump]

The JPY once again lost its luster against the other majors in last Friday’s trading as investors became optimistic on the capitals market. The US markets, together with the other higher yielding currencies, were lifted with the unexpected jump in US existing homes sales.

No economic events were held in Japan last Friday. The main catalyst for the JPY, however, was the US existing home sales. The account surprisingly rose to 5.24 million from 4.89 million. It was only seen to reach 5.03 million. The unexpected jump in the figure sparked a broad base buying of higher yielding assets. The JPY got left out in the process.

Tomorrow (August 25), Japan’s trade balance will be released. The number is projected to narrow to ¥0.29 trillion from ¥0.44 trillion.

Also, its Tokyo core CPI and unemployment rate will be published on August 27. Both accounts are seen to worsen (CPI to -1.8% from -1.7% and unemployment rate to 5.5% from 5.4%).

It is not looking good for the JPY this week given the projections above.

[ForexGump]

Range bound was the theme for the JPY yesterday as the currency lost ground early during Asia but managed to fight back as the European trading session went underway. It seems the light economic calendar for the day kept volatility in the foreign exchange market low.

The highlight for today is Japan’s July trade balance coming out at 11:50 pm GMT tonight. The trade balance measures the total difference in value between goods and services. It is expected to show a 290 billion yen surplus, lower than June’s 440 billion yen trade balance surplus. It seems that global demand for Japan’s exports is starting to pick up as its trade balance finally showed a surplus for the first time in nine months last June. As the fourth largest exporter in the world, Japan’s trade balance gives a good indication of the country’s economic health.

[ForexGump]

Yen pairs stayed within range yesterday, although the yen finished the trading higher once again. The USDJPY and EURJPY pairs ended the day at 94.13 and 134.68.

Late yesterday, Japan's Trade Balance report was released. The report indicated the Japanese exports fell for the 10th consecutive month, as it has fallen by 36.5% from a year ago. This brought the surplus for the past month to 190 billion JPY, less than the expected 340 billion JPY forecast. With no data being released today, can this set the tone for yen weakness today?

Tomorrow we have a couple of medium impact reports, as Tokyo and nationwide CPI data will be available at 11:30 pm GMT, along with household spending and unemployment data.

[ForexGump]

The USDJPY budged a few pips here and there but ended the day unchanged as both the USD and JPY pumped some iron yesterday. Downside risks are present for the JPY with Japanese exports suffering as trade in China shows signs of weakness.

Japan's shipments to China fell by 26.5%, which means that their trade dependence on China might not be able to spur further growth in the third quarter. Also, Japan's exports to the US slid by 39.5%, casting doubts on the sustainability of Japan's positive economic growth.

For today, a load of economic reports should result to a little more excitement in JPY price action. Manufacturing PMI, household spending, Tokyo core CPI, national core CPI, and unemployment rate are all due today. Woah! Manufacturing PMI stood at 50.4 in July and any sign of improvement could boost the JPY. But household spending, which will be reported at 11:30 pm GMT, is expected to be down by 0.5%. This could be a downer for the JPY. Tokyo core CPI also poses downside risks as a 1.8% decline in price levels is expected. Price levels at the national level are projected to post a 2.1% slump. Lastly, unemployment rate could climb from 5.4% to 5.5%. We could see the USD stage another win over the JPY today as the USDJPY teeters around the 94.00 area.

[ForexGump]

The Yen ended yesterday’s session mixed. It fell against the likes of the EUR, AUD, NZD but managed to edge the GBP and the USD.

Nothing major, economics-wise, happened in Japan yesterday. The JPY ended the session pretty much on neutral grounds overall given the mixed economic results from the other nations.

Earlier today, Japan’s household spending, national and Tokyo CPI, and unemployment rate all showed dismal results. Household spending in July fell by 2.0% after rising by 0.2% in June. It was only expected to contract by 0.5%. Deflation is also plaguing Japan as its national core CPI worsened to -2.2% from -1.7%. Its Tokyo CPI also fell further to -1.9% from -1.7%. On top of that, Japan’s unemployment rate rose to 5.7%, against expectations for a 5.5% reading, from 5.4%.

Japan’s economy is not yet totally out of the woods despite being able to lift its national output back in the positive territory. Deflation problems would continue put a drag on the economy’s recovery.

[ForexGump]

The JPY’s movement last Friday versus most major currencies was pretty much range bound as little economic data kept volatility to a minimum. Still, it was the third straight weekly gain for the JPY against the USD and GBP. It seems that the overall trend remains to be buy-the-yen.

Economic data that came out of Japan yesterday gave surprising upside results. The preliminary report on industry production showed a 1.9% growth, higher than the 1.4% expected. Meanwhile, the July retail sales slumped only by 2.5%, lower than June’s -2.9%. It was also better than the -3.3% forecast. Finally, employee earnings decreased only 4.8% in July. The estimate was a 6.3% loss.

Looking ahead, Japan’s economic calendar is pretty light. No hard hitting economic reports due so the JPY’s value would most probably be driven by data coming out of other countries. In addition, risk tolerance would remain an important factor in determining the JPY’s price action versus other major currencies.

[ForexGump]

Interesting day for the yen pairs yesterday, as it was boosted by local politics and run to risk aversion early in the Asian session. It eventually gave back a lot of its gains during the latter parts of the Euro session, but still ended up for the trading day. The yen touched a 7-week high, with the USDJPY pair closing at 93.06.

The yen rallied on increased optimism, as the Democratic party scored a landslide win in the latest Japanese elections, having won 308 out of 480 seats in Parliament. The ruling parting – the Liberal Democratic Party – has been criticized for being too outwardly dependent. They have been afraid of a strong yen appreciation as they believe it would hurt Japanese exports. The Democratic Party on the other hand, won on the promise of internal change. Party leaders said that they would spend more to help stimulate the economy. It appears that people are eager for change – this is probably why we saw a yen rally during the Asian session.

The yen rally was also spurred by a drop in Chinese stocks. The Shanghai Index closed 6.7% lower to start the week. Interestingly, this brought the monthly close to negative territory. Could there be legs to the idea that we should be wary of a W-shaped recovery?

Bank of Japan Governor Masaaki Shirakawa delivered a speech yesterday, saying that the Japanese economy was showing signs of improvement. His tone was slightly better than the latest BOJ report, which indicated that the economy was levelling out.

Not much high impact reports coming up this week. Watch out for news coming out of the G20 meetings starting on Friday. What will financial leaders say about Japan’s new ruling party?

[ForexGump]

Risk aversion dominated for the first day of September with both USD and JPY flexing their safe-haven muscles. Yen crosses fell yesterday as investors dumped higher-yielding currencies on concerns about the state of the Chinese economy.

More and more signs of stabilization are seen in the Japanese economy. Automobile sales rose for the first time in 13 months as the government incentive program to boost demand for motor vehicles is finally starting to bear fruit. This report is a ray of hope for the Japanese consumer spending, considering that purchases of big-ticket items have been sliding down since the onset of the recession.

No market-moving reports were released from this Asian giant yesterday. Only the monetary base, which recorded a 6.1% increase, was on schedule. For today, the Japanese economic calendar is report-free. Economic reports from the US, however, could allow for shifts in risk sentiment. Now let's see if the JPY could still benefit from a surge in risk aversion...

[ForexGump]

The orient’s economic giant, Japan, took the spotlight in yesterday’s trading as it won by landslide against most of the other major currencies. The only currency to put a little resistance against the JPY’s torrent was the AUD. The JPY’s momentum may be carried over today given the overall sentiment of risk aversion.

Japan’s monetary base was the only report yesterday. The account stayed the same at 6.1%, contrary to the expectation for a 6.6%. Such report, however, did not have much impact on the JPY.

A broad-based weakness in the global capitals markets was still felt yesterday as investors worry that the markets’ current levels are already overbought. The markets continued to slide even with some positive economic reports. Safe havens like the USD and the JPY benefited from the selling of higher yielding assets.

No economic reports are due in Japan today. The JPY may just take a pause today given its sharp rise during the last couple of days and today’s lack of economic flows in Japan. The JPY's upward momentum may also continue today if risk aversion in the capitals markets persists.

[ForexGump]

It looks like the yen played nice and gave back some ground back to other major currencies. Despite the one-directional move yesterday, the overall trend remains to be “buy-the-yen.”

No economic report due for release out of Japan today so the yen’s price action would probably be largely dependent on news coming out of other countries. If you still haven’t gotten it, I’m hinting on the US non-farm payrolls due later! Knowing how sentiment could change on a dime, it would be best to see what the report brings to avoid event risk. I did a short blog entry on the US labor market so why don’t you go check it out?