Daily Economic Commentary: Japan

[ForexGump]

The Yen failed to stage a broad-based rally last Friday despite the BOJ raising its outlook on the Japanese economy. Rather, the JPY just moved sideways to close mixed against most players.

The Bank of Japan lifted its overall on the Japanese last Friday for September from the month prior for the first time since July. It stated that the country is already “showing signs of recovery.” It mentioned also that the Japanese exports, industrial output and corporate funding are exhibiting improved conditions. It, however, remained cautious by saying that the general consumption remains to be weak.

No economic reports are on tap today in Japan due to a bank holiday.

Action will start on September 23 with the publication of Japan’s trade balance. The country’s trade balance is seen to narrow slightly to ¥180 billion from ¥190 billion. The JPY may lose a little bit of ground if its balance shrinks.

On September 24, the BOJ will also report the minutes of its latest MPC meeting.

[ForexGump]

Wow, it looks like yen bulls have taken a breather as it was sold off versus most major currencies in yesterday’s trading session. Whether this is merely a retracement of the recent yen rally or a reversal of the trend has yet to be confirmed. I guess we’ll just have to see as the week marches along.

Today, Japan banks will be closed again as they continue their holiday celebrations. This means that Japan’s economic calendar will be as clear as the bright blue sky during the European/US session!

The next economic due for release will be the country’s trade balance for August. The report will come out at 11:50 pm GMT, early in the Asian trading session. It is expected to show a 180 billion yen surplus, slightly higher than the month prior’s 190 billion yen surplus.

[ForexGump]

The yen encountered some bad luck while Japan was on holiday yesterday, as it fell slightly against the EUR and GBP yesterday. Still, the currency showed resilience versus the USD as it managed to take back all of its losses from Monday’s session. With Japan coming out of an extended weekend, what could possibly happen to the yen today?

We won’t see anything in terms of economic data until later tonight at 11:50 pm GMT when the country’s trade balance figures are released. Despite this, a lot of high impact news coming out from the Euro zone, UK and US and I suspect we could be in for a wild ride! Better put on your seat belts (a.k.a stop losses) - you don’t want to hurt if we see lots of strong turns!

Going back to Japan data, the September trade balance is expected to shrink to 180 billion yen from a 190 billion yen surplus. The trade balance measures the difference between exported and imported goods of a country.

[ForexGump]

The JPY stumbled across the charts as it traded mixed against the USD, GBP, and AUD. The US FOMC statement sparked a bit of risk tolerance, forcing the JPY to give way to other major currencies. It's a good thing Japan's trade balance came in better than expected, otherwise the JPY wouldn't have been able to recover some of its losses.

Japan's trade surplus beat the consensus of 0.18 trillion JPY and landed at 0.24 trillion JPY in August. Looking beyond the headline number, one could note that Japan's exports fell 0.7% from July to August - its second consecutive drop. This brings the annualized pace of decline to 36%. The report suggests that, as the government exhausts stimulus spending, the boost in overseas demand that helped the Japanese economy expand is slowly losing steam. Hmm, I wonder what will happen to their economy when the stimulus is gone...

For today, we have the BOJ monetary policy minutes on tap. The report, which is due at 11:50 pm GMT, should detail the reasons behind the latest BOJ monetary policy decision. That's pretty much all that Japan has for this week but that doesn't mean that price action for the next couple of days will be calm. Watch out for sudden shifts in risk sentiment and stay focused! Good luck!

[ForexGump]

The JPY hit the jackpot in yesterday’s trading as it ended the session positively over all the other major currencies. Its biggest score was against the pound when it closed at 146.53 from a high of 149.38.

The strength of the JPY yesterday was sourced from the dismal existing home sales in the US. Existing home sales unexpectedly fell to 5.10 million units from 5.24 million. The drop in the figure sparked risk aversion in the capitals markets which led investors back to the JPY and USD.

Earlier today, details on the BOJ MPC minutes were released. Based on the report, the Bank continued to purchases CP and corporate bonds to facilitate corporate financing. Nothing came into surprise as the account just outlined what was agreed in the previous MPC meeting.

Meanwhile, the JPY continues to get some support early in today’s session because of the announcement of Nomura Holdings Inc. that it will sell new shares. Asian equities, as of this writing, are currently trading in the red zone.

In the US, durable goods orders are scheduled for release. Both headline and core accounts are seen to taper off during the previous month. Also, data on new home sales will be published. Given yesterday’s decline in existing home sales, it will not be surprising to see a similar drop in the upcoming figure.

[ForexGump]

The yen continued currency market domination last Friday as investors were comforted that the BoJ had no intention of doing any currency intervention. If this kind of buy-the-yen trend keeps up, we might see the currency head to 87.00 against the dollar.

On today’s economic plate is Tokyo’s consumer price index for September. The forecast is a reading of -2.0%. Deflation continue to persist as consumer spending remains subdued. The index will be out at 11:30 pm GMT tonight.

Also due this week is one of the most awaited reports – the Tankan manufacturing survey for the third quarter of 2009. The survey measures the state of the manufacturing industry of Japan – whether it is improving or worsening – by using a positive/negative scale. A reading above baseline zero means conditions are improving. The consensus is a -32 reading; a slight improvement from quarter prior’s -48. You can see the actual results of the survey on Wednesday, 11:50 pm GMT.

[ForexGump]

The yen came running out of the gates to start the trading week, as it zoomed past the EUR and USD. Alas, the yen slowed down and gave up its lead during the latter session. In fact, as my buddy BigPippin pointed out, the USDJPY pair closed at it’s opening… could the yen strength be losing steam?

The yen made strong gains against the dollar yesterday, as the USDJPY pair hit as low as 88.24. The yen has been rallying after comments made by Finance Minister Hirohisa Fujii, who a week ago said that he didn’t support a weak yen. Yesterday though, he said that people misinterpreted his comments. It will be interesting to see what will be said in the coming days and to see whether Japanese officials will try to weaken the yen through verbal intervention.

Late yesterday, some CPI data was released. The data showed that consumer prices in Tokyo have fallen by 2.1% from a year ago while nationwide prices fell by 2.4%. It didn't seem to have much effect on markets though...

At 11:50 pm GMT, the preliminary industrial production m/m report will be released. Production has been slowing down the past couple of months, and it is expected to print slower growth once again for August. Industrial production is expected to has grown by just 1.9%, down from a upwardly revised 2.1% in July.

Tomorrow, we could be in for a rock and roll session, as the Tankan surveys will be released. The reports – which measure the state of Japan’s manufacturing sector – normally create a lot of noise in the markets. Make sure you got some ear plugs if you can’t handle the decibel levels.

[ForexGump]

There ain't nothin' like the words "Currency intervention is possible under the extreme circumstances" and "Present currency moves are too sudden" from Japan's Finance Minister to cause a large-scale dumping of the Yen. The USDJPY climbed up the 90.00 level while Yen crosses staged strong rallies.

Would Japan's new leaders soon abandon their pro-Yen stance? Is Finance Minister Fuji succumbing to political pressures? It seems like the democratic party learned a valuable lesson yesterday... Being too open about their reformist views could have drastic consequences, particularly in the currency markets.

Economic data from Japan was mixed as manufacturing PMI posted an improvement while industrial production failed to meet expectations. Manufacturing PMI climbed from 53.6 to 54.5 in September, its highest level in three years. Industrial production, on the other hand, came below the consensus of 1.9% and the previous month's reading of 2.1%. It rose by 1.8% in August, marking its sixth consecutive monthly increase and its longest winning streak in 12 years.

Up ahead, we have the highly anticipated Tankan index due at 11:50 pm GMT today. The manufacturing index is expected to climb from -48 to -32 this quarter but it may also show that firms plan to cut their spending despite signs of an economic recovery. The recent gains of the Yen, which dampens demand for Japanese producers' exports, could be one of the reasons why future plans for business investments remain weak. The non-manufacturing index is also projected to show an improvement by climbing from -29 to -25 this quarter. Also due today is the retail sales report which could post a 2.4% year-on-year decline.

[ForexGump]

Makoto Itsumi, a former currency official at Japan’s Finance Ministry, said that the yen may reach 100 against the dollar in the coming months given Japan’s relatively weak economic fundamentals and low interest rate levels. The yen, however, closed mixed versus the other major currencies despite his bearish sentiment on the JPY. The USDJPY even lost ground and closed at 89.77.

Sentiment among Japan’s biggest manufacturing firms rose to -33 from -48 based on the latest Tankan survey report. The figure, however, is a tick below the initial forecast of -32. Sentiment among the non-manufacturing firms also improved to -24 from -29. Despite the improvements in the figures, confidence levels on both accounts are still way below the 0.0 marker. These results indicate that firms are planning more cuts in spending and investment given the slump in their profits. Sadly, this also shows that Japan’s “recovery” may not be able to sustain its momentum.

Up next will be the announcement of Japan’s unemployment rate and household spending for the month of August at 11:50 pm GMT. The unemployment level in Japan is expected to worsen to 5.8% from 5.7% while spending among households are also seen to decline by 0.2% after already falling by 2.0% during the previous period. The negative expectations in the mentioned accounts could further weigh on the JPY.

[ForexGump]

It seems that the yen is still the go-to-guy when risk aversion hits the market. The yen managed to gain significant ground against most major currencies such as the dollar, pound and euro, when equity markets in the US started losing value.

Japan’s unemployment rate just released showed unexpected results. It indicated that more people were hired than fired in August! This is quite a surprise, considering how poorly other sectors of Japan’s economy is faring. The report reported that the country’s joblessness fell to 5.5% from 5.7% in July. Still, even if this is the case, I would hold off rejoicing as this could merely be a correction after six consecutive months of increase.

The report on household spending also came out with a surprise upside. It showed that spending grew by 2.6% August-on-July, opposite the 0.1% decrease initially predicted.

That’s about it for economic data out of Japan today. Still, watch out for the NFP coming out of the US tonight!