Daily Economic Commentary: Japan

[PipDiddy]

Unlike the Greenback, the low-yielding yen wasn’t too affected by a covering of short positions during the Thanksgiving holiday. The yen clobbered its major counterparts with EUR/JPY fell by another 27 pips to 102.90, while GBP/JPY plunged to an intraday low of 119.38 before capping the day with a 55-pip loss.

Luckily for the yen bulls, the traders’ attention wasn’t on Japan’s mixed economic data. Yesterday we saw Tokyo’s CPI clock in a 0.5% decline October against expectations of only a 0.1% decline, while the country’s CPI steadied at 0.1% in the same month. Lastly, the corporate services price index published a 0.1% growth even when market geeks only expected a flat growth rate.

Is it because all the attention has been on the euro region lately? If you’ve read my EUR writeup, then you’ll know that Germany’s Angela Merkel once again stirred up the markets by saying no to more participation from the ECB as well as the euro zone bonds.

Will the yen gain against its counterparts for another day today? At 6:00 am GMT BOJ Governor Shirakawa is scheduled to make a speech. You better be glued to the tube around this time because we’ll never know what the BOJ might be cooking up next!

[PipDiddy]

Surprisingly enough, the yen performed poorly against its major counterparts despite the fact that risk aversion seized the markets once again. It lost ground against the dollar and the British pound and only managed to gain 2 pips against the euro. What gives?!

My guess is that there were two main reasons behind the yen's weakness last Friday. First off, it was revealed by Japanese officials on Thursday that Japanese banks are actually heavily invested in Italian, French, and German debt. As such, they stand to lose a lot of dough should these bonds continue to deteriorate in value.

Secondly, the demand for the yen might have been negatively affected by Japan's CPI. Apparently, the Japanese economy slipped back into deflationary conditions in November, with the core CPI falling into negative territory for the first time in four months. The core figure fell from 0.2% to -0.1% last month.

Of course, we also can't overlook the fact that USD/JPY had been treading in dangerous territory for a while and that the BOJ was probably closely watching the pair, perhaps considering another intervention.

We've got a busy week ahead of us in Japan, and the action will start today! At 11:30 pm GMT, unemployment data will be due. Look for the unemployment rate to increase from 4.1% to 4.2%. At the same time, the household spending report is slated to show a 1.5% decrease following the 1.9% downtick in September. Soon after that, at 11:50 pm GMT, retail sales data will be published. Forecasts have retail sales rising 0.6% month-on-month after printing a 1.4% decrease in October.

Tomorrow, we'll follow up with some industrial production figures. I did a little research and found out that a 1.1% rise is expected to reverse the 3.3% month-on-month drop that we saw back in September.

Don't you dare miss these reports, fellas! If they print upside surprises, it may just help revive demand for the yen!

[PipDiddy]

Phew! I bet the Bank of Japan let out a sigh of relief when they saw all the risk-taking that took place yesterday! EUR/JPY rose to as high as 104.52, before settling at 103.77 to finish with a 38-pip gain, while GBP/JPY closed at 120.87, up 81 pips on the day.

Risk appetite got a nice boost from rumors that the IMF was gonna lend Italy 600 billion EUR and that some progress was being made towards the inception of “stability bonds” in the euro zone. Of course, the IMF rumor turned out be just that, a rumor, and there’s no telling when or if we’ll ever see joint euro zone bonds. Nevertheless, this helped fuel a much needed short squeeze on higher yielding currencies.

Earlier today, we got some mixed news from Japan. Household spending fell less-than-expected, decreasing by just 0.4% year-on-year this past October, while retail sales increased by 1.9% during the same period. Unfortunately though, the unemployment rate ticked up to 4.5%, which was way higher than the projected 4.2%.

No major reports coming out today from Japan but that doesn’t mean you can just take a chill out for the rest of the day. My buddy Forex Gump just wrote about three things to keep an eye out for when trading the yen pairs, so I suggest checking that out!

[PipDiddy]

It's the revenge of the higher-yielders! The Japanese yen got clobbered by risk appetite and wound up losing against most of its major counterparts, except for the U.S. dollar. USD/JPY closed 10 pips below its 77.96 open price while EUR/JPY locked in a teeny tiny gain and ended at 103.78.

Economic data from Japan came in mixed again as manufacturing PMI was worse than expected while the preliminary industrial production data beat expectations. The manufacturing index slid from 50.6 to 49.1 in November, signaling that the industry contracted during the month. Meanwhile, the industrial production report printed a 2.4% increase for October, more than twice the estimated 1.1% rise. On top of that, the September figure was revised upwards to show a 3.3% decline instead of the initially reported 4.0% drop.

Japan is set to release its average cash earnings and housing starts data today At 1:30 am GMT and 5:00 am GMT respectively. After dipping by an annualized 0.4% in September, average cash earnings or the value of employment income collected by workers could stay flat for October. A higher than expected figure could be positive for the yen since larger incomes could spur consumer spending and overall growth later on. As for housing starts, a 6.1% year-over-year dip is expected to follow September's 10.8% decline.

Don't forget to gauge market sentiment before taking any yen trades though! You never know, we might be in for a midweek reversal so place those stops well!

[PipDiddy]

Surprisingly, even with the markets on risk-on mode, the yen took just a small hit in yesterday’s trading action. EUR/JPY managed to post a 43-pip gain and close at 104.21, while GBP/JPY finished 16 pips higher at 121.70.

The big news that helped boost risk appetite yesterday was that major central banks cut the costs of emergency dollar loans. This helped higher yielding currencies soar up the charts. Surprisingly though, the yen didn’t suffer too much losses, as traders decided to unload dollars instead of yen.

No biggies on the docket today, so we should continue to focus on risk sentiment. Risk appetite has clearly picked up a bit this week, but as I always say, sentiment can change on a dime, so be careful out there!

[PipDiddy]

Poor yen, it looks like it didn’t get any lovin’ from investors yesterday. Both USD/JPY and EUR/JPY traded higher. At the end of the day’s trading, the yen lost 14 pips to the dollar and 39 pips to the euro.

But fret not yen bulls! A handful of analysts are saying that it may only be a matter of time until we see the yen rally again. Of course, that’s based on the assumption that European leaders will fail to impress markets with their plans to solve the sovereign crisis after their meeting next week.

For today, be sure to keep tabs on the high-caliber reports we have on tap. Only the capital spending report for Q3 2011 was released from Japan and it came in much lower than expected at -9.8%. Analysts were expecting a more modest decline of -4.1%. It seems like there was very little reaction to the report though.

I think that the NFP report which is due later today, at 1:30 pm GMT, will be more worthwhile to sink our teeth into. Read up on my USD commentary to better prepare for the much-anticipated jobs report and be sure not to miss it, ayt?

[PipDiddy]

Indeed, what a marvelous Monday it was for the yen. The Asian currency posted wins against most of its major counterparts, getting 27 pips from the dollar and 69 pips from the euro.

There wasn’t any report released from Japan yesterday but risk aversion was aplenty during the New York session and highlighted the yen’s safe haven status. So with that said and given that our forex calendar is still blank for reports from the Land of the Rising Sun, be sure to keep tabs on updates from the euro zone!

[PipDiddy]

The yen turned in a mixed performance yesterday as risk appetite came left went. While the currency ended the day lower versus the euro, it posted a small gain over the pound. Against the dollar, the yen was virtually unchanged by the end of the day.

For the first part of the day, risk aversion was the main market theme as S&P decided to place the sovereign debt of 15 European countries on negative watch. Then, sentiment quickly reversed when some positive statements from European political leaders regarding the upcoming EU summit came out.

No major data coming out today so I don't expect a lot of volatility from the yen. Keep a close eye on the previous day's highs and lows! They could very well hold!

[PipDiddy]

Yen trading remained tight, as we barely saw any movement on USD/JPY. Meanwhile, EUR/JPY is still trading within a tight range and closed at 104.13, just 5 pips above its opening price.

Earlier today, core machinery orders figures were released and unfortunately, the numbers were quite disappointing. Orders dropped another 6.9% last October, after they had dropped by 8.2% in September.

One reason why manufacturers may have cut down their spending on machinery is because the rise of the yen is hurting many Japanese companies. Remember, the Japanese economy is heavily export based, so if the yen remains strong, their goods become more expensive relative to those from other countries.

No biggies on the docket today, but we do get final GDP figures for the third quarter at 11:50 pm GMT. No changes are expected from previous reports, so it is expected that the report will show that the Japanese economy grew by 1.2% last quarter.

[PipDiddy]

Thanks to risk aversion, the Japanese yen bounced back to life and bagged some gains against most of its counterparts yesterday. However, the yen lost a bit of ground to the U.S. dollar as USD/JPY ended the day 4 pips up from its 77.66 open price. Will risk aversion stay in play today?

Disappointment over the ECB rate statement brought both volatility and risk aversion back in the markets yesterday as ECB head Mario Draghi downplayed the central bank's role in the debt crisis. So much for being the lender of last resort!

Then again, not all hope is lost for the euro zone since its leaders will convene for the EU summit today and hopefully come up with a better plan for their troubled region. Make sure you keep your eyes and ears peeled for any updates on the summit since this could determine whether risk aversion will extend its stay or not.

As for economic data, reports from Japan printed mixed results yesterday as a manufacturing index came in much weaker than expected while the final GDP figure came in slightly better than consensus at 1.4%. Japan's BSI manufacturing index landed in the red as it printed a -6.1 reading instead of climbing from 10.3 to 11.4 for this quarter.

No other reports are due from Japan for the next 24 hours so make sure you keep tabs on market sentiment. Good luck!