Daily Economic Commentary: Japan

[PipDiddy]

Boo hoo! The Japanese yen got clobbered by its higher-yielding counterparts as risk appetite surged yesterday. Its only win was against the safe-haven U.S. dollar as USD/JPY closed 4 pips below the 76.00 handle. Read on to find out whether the yen could get back on its feet today or not.

The announcement of the euro zone debt deal, along with strong economic figures from the U.S., brought risk appetite back in the markets yesterday and led traders to dump the lower-yielding Japanese yen. It didn't help that Japan was off to a poor start as they released weaker than expected retail sales data during the Asian session. The report showed that consumer spending dipped by an annualized 1.2% in September instead of staying flat. Now that can't be good, considering retail sales already slipped by 2.6% year-over-year during the previous month!

That was probably why the BOJ decided to keep interest rates at their current low levels during their monetary policy decision. They even decided to add 5 trillion JPY to their asset purchase program in order to boost the Japanese economy. However, this was actually a disappointment for some market participants since they expected more aggressive action from the central bank. Some were even counting on a currency intervention since USD/JPY is lingering at its post-war lows.

The BOJ also downgraded their growth forecasts as they now expect the Japanese economy to expand by only 2.2% in 2012 versus the previous forecast of 2.9%. This year, they're expecting a mere 0.3% GDP growth instead of the original forecast of 0.4%. Inflation expectations were also lowered to account for the negative effects of the rising yen on their domestic economy.

Fresh off the press are the household spending, CPI, and industrial production data. The September household spending report chalked up a smaller than expected decline of 1.9% year-over-year versus the consensus of a 3.4% dip. This was also much better compared to the 4.1% slide seen in August. Another notable improvement was the drop in joblessness from 4.5% to 4.3% in September.

However, the Japanese industrial production report came in worse than expected and showed a 4.0% drop, double the projected 2.0% decline for September. These mixed data could dull the yen's shine again today, but watch out for any shifts in risk sentiment to know whether the safe-havens or higher-yielders would end the day with a win.

[PipDiddy]

Aaah, it looks like the yen had a good day last Friday ending the day higher against most of its counterparts as risk appetite waned on skepticism about the EZ debt plan. EUR/JPY closed 47 pips lower at 107.25 while USD/JPY ended the day 19 pips below its opening price at 75.75.

But alas, good things do come to an end. Earlier in the Tokyo trading session, yen pairs skyrocketed up the charts with USD/JPY shooting up to 79.51 from 75.57. Finally, the BOJ put its foot down and kept the yen from getting any stronger.

I have a feeling traders will be wary of buying the yen today following the intervention. So be careful too, ayt? Be on your toes for updates from the BOJ!

[PipDiddy]

Finally!!! After days of "talking the talk" (a.k.a. jawboning), the Bank of Japan finally "walked the walk" and acted to weaken the Japanese yen. As a result, USD/JPY saw a 253-pip gain and closed at 78.17, while EUR/JPY finished 136 pips higher at 108.33 after topping out at 111.59.

Midway through the Tokyo session, the BOJ finally stepped in to sell and weaken the yen. As you all know, the yen had been enjoying a big rally prior to the BOJ's intervention. The question now is, will it work this time or will the intervention flop again?

Solo interventions haven't been successful in the past, so there's a very real chance that the yen may find itself back up the charts again. That being the case, I would continue to keep an eye out for further BOJ activity as it may have more interventions up its sleeve! After all, it will need to get aggressive if it wants to spook traders from buying the yen and show them it means business.

[PipDiddy]

Thank you, risk aversion! After taking a big hit on Tuesday, the Japanese yen hopped on over to the winners' side of the fence as it gained ground against higher-yielding currencies. Though it ended weaker against the dollar, with USD/JPY rising another 21 pips on the day, it rose 93 pips against the euro and 75 pips versus the pound.

How fickle these traders are! After ditching the yen following the BOJ's intervention on Monday, traders quickly came rushing back to buy up the safe haven currency as risk aversion struck the markets. It looks like the yen hasn't lost its safe haven appeal yet after all!

On another note, the minutes of the most recent monetary policy meeting seemed surprisingly optimistic. Members of the central bank noted improvements in production, exports, consumer spending, housing investment, and even in the ailing job market! I daresay, it seems like Japan is showing signs of recovery!

Meanwhile, Japan's average cash earnings were unchanged last month, putting a halt to its recent decline. Could this mean that wages will finally stabilize in the Land of the Rising Sun?

In any case, we'll have to ponder on that some more as we won't have any new economic reports coming out from Japan today. For now, I suggest you all continue monitoring risk sentiment. Remember, if risk sentiment turns sour, expect the yen to show its power!

[PipDiddy]

So much for intervention! While USD/JPY has remained steady above 78.00, EUR/JPY and GBP/JPY are right back to where they were before the BOJ intervened in the markets! What gives?

With risk aversion still weighing down higher yielding currencies, the yen advanced versus most of its counterparts. This just goes to show that even with the threat of intervention, the yen can still gain in times of uncertainty.

With yen crosses falling across the charts, we may just see the Bank of Japan stick its head back into the markets for another round of yen selling. For those of you who like trading the yen crosses, be careful out there and always practice good risk management techniques!

[PipDiddy]

The Japanese yen's performance was as mixed as a bag of nuts as it lost to the Greenback and the euro but gained against the pound. USD/JPY struggled to hold on to the 78.00 handle as it dipped to 77.89 before closing at 78.06. EUR/JPY closed 60 pips up from its 107.30 open price while GBP/JPY ended 7 pips below the 125.00 mark.

Japan didn't release any economic reports yesterday since it banks were closed in observance of Culture Day in their country. Despite the lack of data, the Japanese yen was able to make some wild moves across the charts as risk sentiment shifted around. Still, traders seemed reluctant to put their money in the yen as they worried that another currency intervention could take place.

There aren't any economic reports due from Japan for the next 24 hours so be mindful of the swings in risk sentiment if you're trading the yen pairs. Bear in mind that the U.S. is set to release its NFP figure today and this report is notorious for setting off fireworks in the forex market. Stay on your toes!

[PipDiddy]

So far so good! Despite the release of the NFP report from the U.S. and the G20 meetings making waves in the markets, the yen managed to hang on to most of its losses from the BOJ intervention early in the week. USD/JPY is still above the 78.00 handle, while EUR/JPY capped the day at its open price.

Does this mean that the BOJ should pat itself on the back and call it a good week? Heck no! A lot of high-impact reports from the other major economies are due for release this week, not to mention the potential impact of speeches that the EU and the U.S. leaders are scheduled to give over the next couple of days. The yen could still dramatically rise if risk aversion suddenly spikes up!

For Japan though, only the leading indicators at 5:00 am GMT is scheduled for release. The data is expected to clock in at 96.3% in September after showing a 103.8% figure in August, but keep your eyes peeled for any surprises!

[PipDiddy]

Banzai! Yen bulls ended the day piptorious against their major counterparts. USD/JPY ended the day 13 pips below its opening price at 78.06 while EUR/JPY closed at 107.56 after starting the day at 107.85.

It looks like the pullback in risk appetite caused by concerns about political instability in Greece and Italy. With that said, it might be a good idea to keep tabs on market sentiment and listen in on updates from the euro zone given that we don't have any economic data on tap from Japan today.

Remember, the yen usually rallies in times of risk aversion!

[PipDiddy]

A little bit of this and a little bit of that is what we got from the Japanese yen yesterday. Despite publishing positive current account data, the yen slid against the euro, with EUR/JPY ending at 107.89, 92 pips above its opening price. On the other hand, it gained ground against the dollar as USD/JPY finally broke below 78.00 to finish 36 pips lower at 77.69.

The only news that we got from Japan was an early report saying that Japan's current account balance increased from 0.65 trillion JPY to 1.19 trillion JPY. However, it seems that this was largely ignored by the markets as it didn't cause so much as a blip on the charts.

For those of you planning to trade the yen today, keep a close watch on USD/JPY! Things are looking interesting now that it has broken below the 78.00 support area. With the pair still sliding down, you have to start wondering if the BOJ will intervene again. Some say 77.50 could be the next stalling point and that if price breaks below this level, the BOJ may get busy again. In any case, be sure to stay on your toes. The BOJ is full of surprises!

[PipDiddy]

Although the yen wasn’t able to end the day with a win against the dollar, it was still able to get 201 pips from the euro when EUR/JPY ended the day at 105.49. Sweet!

As you probably know now, rising Italian bond yields and weaker-than-expected economic reports from China sparked risk aversion and made investors move their assets to the safety of the dollar and the yen. However, aside from the current market sentiment, I have a feeling that the positive data we saw from Japan helped the yen rally too.

It was reported that Japan account surplus widened in September to 1.19 trillion JPY from 650 billion JPY in August and beat the market’s 960 billion JPY forecast. According to the Economy Watchers, consumer sentiment improved in October from 45.3 to 45.9 but failed to meet the consensus of 46.7.

With that said, make sure you also keep tabs on the reports we have scheduled today. We already saw that core machinery orders declined more than what analysts had estimated. The report printed at -8.2% and disappointed the forecast which was for a more modest contraction of 7.3%. Be sure that you also don't miss the consumer confidence report for October, eyed at 39.3, due at 5:00 am GMT.

Just remember not to get too excited buying the yen though. Keep in mind that USD/JPY is already at its lows and the BOJ may just make good on its promise to intervene when the yen gets too strong. Be careful!