Daily Economic Commentary: Japan

[PipDiddy]

Did the yen just show a more consistent price action than the dollar?! The yen rose against its counterparts yesterday, gaining 30 pips on the dollar, 41 pips on the euro, and 44 pips on the pound. As it turned out, yen traders concentrated on two things.

Their first concern was risk aversion. With Bernanke finishing up his second testimony where he dispelled QE speculations in the short-term, traders went back to worrying over the euro zone. And we all know how safe-haven junkies love to buy the low-yielding yen in times of uncertainty!

Another factor that came into play was the BOJ minutes, which revealed that the central bank had scrapped its 0.1% floor on buying long-term bonds. Apparently, the central bank is having trouble stimulating the economy as there aren’t enough investors willing to sell their Japanese government bonds in exchange for cash. By allowing purchases of bonds with negative yields, the BOJ is widening its options in stimulating the economy.

No economic data is scheduled for release in the Land of the Rising Sun today, so you might want to keep an eye out for the other major news that might influence risk appetite!

[PipDiddy]

"You win some, you lose some!" was the theme of the day for the yen. While it chalked up solid gains against the dollar and the euro, it couldn't help but give ground to the pound. What can we expect from it today?

We didn't really get any ground-shaking news from Japan yesterday. The only report that it rolled out, the all industries activity index, fell below expectations (-0.3% vs -0.2%) and revealed the poor weather in Japan has been taking its toll on consumer spending.

Again, nothing big coming out of Japan today. In the meantime, keep tabs on risk sentiment and keep in mind the yen's role as a safe haven currency!

[PipDiddy]

Someone call the Bank of Japan, cause the yen’s on fire baby! Thanks to a nice run of risk aversion, the yen tore up the euro and pound last Friday, with both EUR/JPY and GBP/JPY dropping over 100 pips.

With concerns about Spain’s bailout needs taking its toll on the markets, the yen benefitted from the wave of risk aversion to end the week. Of course, this isn’t good news for the BOJ, as this sent the yen to a 12-year high versus the euro. Could we see some intervention soon?

Not big reports headed our way from Japan over the next couple of days, so risk sentiment will most likely be the major driver of yen trading this week.

[PipDiddy]

Now that's what you call a sweep, fellas! The Japanese yen ended higher against ALL of its major counterparts as risk aversion surged yesterday. USD/JPY closed at 78.39, after dipping below the 78.00 handle, while EUR/JPY ended the day 13 pips above the 95.00 handle.

Thanks to mounting euro zone debt problems, particularly in Spain, the lower-yielding Japanese yen was able to gain ground against its major counterparts. It turns out that another Spanish city, Catalonia, might join Valencia in asking for financial help from its government as the debt troubles in euro zone's third largest economy keep worsening.

Only the Japanese trade balance is set for release from Japan today, which means that the yen could continue to move to the tune of risk sentiment for most of the day. Their trade deficit is projected to narrow from 0.66 trillion JPY to 0.39 trillion JPY, suggesting that the gap between imports and exports shrank during the period. A smaller than expected deficit could be positive for the Japanese yen, so make sure you keep an eye out for the actual release at 11:50 pm GMT.

[PipDiddy]

With risk aversion in full tow, the yen continued to batter away at the European currencies yesterday. EUR/JPY slid 75 pips lower to finish at 94.38, while GBP/JPY dropped 36 pips to end the day at 121.33.

The only piece of data released from Japan was trade balance figures, which were slightly better-than-expected. Japan posted a deficit of just 300 billion JPY last month, which was less than half the 620 billion JPY deficit we saw last month.

However, seeing as how strong the yen has been lately, it will be interesting to see whether we’ll start to see larger deficits as exports suffer. More importantly, let’s see if this leads to more action from the Bank of Japan later down the line.

No biggies on the docket for today, so make sure you keep an eye out for risk sentiment. Who knows, we might just see a midweek rally take place!

[PipDiddy]

Despite Japan's trade deficit narrowing, the yen was still unable to tap its inner Samurai warrior as risk appetite kept it from rallying against most of its higher-yielding counterparts yesterday. EUR/JPY ended the day higher at 95.03 after opening at 94.38. Meanwhile, AUD/JPY finished the day 47 pips higher at 80.62.

It was reported that Japan's imports only outpaced its exports by 300 billion JPY in June. Not only did the figure top the forecast which was for a 390 billion deficit, the figure also translates to the smallest trade deficit we've seen in 9 months!

However, a deeper look at the report reveals that the figure reflects a 6.5% decline in imports and 1.4% drop in exports. This means that demand deteriorated in June which is ultimately bad news for Japan. Yikes!

On the slightly-brighter side of things though, the yen was still able to sneak some pips away from the dollar and the pound following disappointing data from the U.S. and the U.K. It scored a 2-pip win from the dollar as USD/JPY closed at 78.17 and 17 pips from the pound when GBP/JPY settled at 121.16 at the end of the day's trading.

Today, inflation and consumer spending reports are on tap and could affect the yen's price action.

At 11:30 am GMT, Tokyo's core CPI is expected to have remained steady at -0.6% in July while the national core CPI is seen to have been flat during the month. Then at 11:50 pm GMT, Japan's retail sales for June is anticipated to come in at 1.2%.

I have a feeling that market sentiment would be a big factor in the yen's price action today too. So aside from keeping tabs on these reports, make sure you also gauge the market's mood!

[PipDiddy]

Out of the way, yen sellers coming through! With risk appetite dictating price action on the charts, traders dumped the safe haven yen in favor of higher-yielding currencies. EUR/JPY rose 106 pips to 96.09 just as GBP/JPY surged 165 pips to 122.71. Will the yen see more losses today?

Maybe! If the markets maintain their risk appetite, that is!

Yesterday just wasn't the yen's day. Aside from dealing with the markets' crazy risk rally, it had to battle some bearish words from the BOJ.

The central bank outlined its plans to boost the economy, fight deflation, and weaken the yen yesterday, saying it wants to focus on clean energy, agriculture, and health. It also added that it won't hesitate to pull the trigger on monetary easing. Jawboning at its best! Looks like the party may be over for yen bulls!

In other news, Japan rolled out a few reports earlier today. The core CPI printed a 0.2% decline in prices (versus 0.0% forecasts), highlighting Japan's persistent deflationary problems. On the other hand, retail sales rose just 0.2%, a full percentage point below expectations.

If you plan on trading the yen, bear in mind that risk sentiment will probably continue to be the key market driver today. Aside from new developments in the euro zone, sentiment may be affected by the U.S. GDP report. Be careful out there, kiddos! We could be in for a bumpy ride!

[PipDiddy]

Boy, did the yen have a bad Friday. It scored losses to all of its major counterparts as risk appetite lingered in the markets and disappointing data came out from Japan. USD/JPY closed the day 30 pips above its opening price at 78.51 while EUR/JPY finished at 96.56 after opening at 96.09.

Promises from EU leaders that they would do everything in their power to protect the euro helped boost market sentiment on Friday. However, worse-than-expected reports from the Land of the Rising Sun might have also caused the yen's demise.

Consumer spending for June only grew by 0.2.% and missed the forecast by a full percentage point. On top of that, Japan's national core CPI fell short of expectations for the first time in 11 months when it came in at -0.2% (analysts anticipated to show that prices remained stagnant for July).

Word around the forex hood is that the disappointing inflation report might have raised the flag for the BOJ as it implies that the economy is still struggling with deflation. In fact, some market junkies say that the central bank now has one more reason to launch more stimulus measures. Yikes!

And it looks like the disappointment didn't end there. Earlier, it was reported that industrial production contracted by 0.1% in June, falling waaay short of the market's 1.6% forecast.

But don't fret yen bulls! Who knows, if risk aversion kicks in today, we may just see the yen rally. So be on your toes, ayt?

[PipDiddy]

In spite of the lack of high profile news reports, the yen was still able to trade firmer yesterday. The yen rallied 39 pips versus the dollar, 68 pips versus the euro, and 60 pips against the pound.

The yen’s rally was driven mostly by risk aversion. Sentiment turned sour as market participants showed pessimism on the ECB’s interest rate decision. Some analysts noted that the ECB could simply take a wait-and-see approach and demand more action from governments rather than take any action itself.

In other news, the Preliminary Industrial Production report came in worse than expected. It showed that production fell 0.1%, opposite the 1.6% gain initially expected.

Earlier today, some figures on employment were released. Japan’s unemployment rate was reported to have fallen to 4.3% from 4.4%. Unfortunately, average cash earnings declined 0.6%.

No major reports left on Japan’s economic cupboard today, so we could see the yen simply move sideways today. Keep a close eye on the previous day’s highs and lows as they could serve as major inflection points.

[PipDiddy]

Just like the dollar pairs, yen pairs were all over the place yesterday. EUR/JPY closed 28 pips higher to finish at 96.13, while GBP/JPY fell 36 pips to end the day at 122.49.

As expected, yen pairs traded in a sideways fashion, as no hard hitting data was released. That could all change today though, as we’ve got a slew of reports headed our way from the U.S. during the New York session. Make sure y’all hit up my U.S. commentary for the 411!