Daily Economic Commentary: Japan

[PipDiddy]

With risk appetite improving yesterday, the yen was the biggest loser in yesterday’s trading wars. It fell against all its major counterparts, as GBP/JPY and EUR/JPY edged 41 pips and 40 pips higher to finish at 125.34 and 100.36, respectively.

Once again, we’ve got nothing on tap today, but you can bet your Naruto collection that many traders will be paying close attention during the New York session, when the FOMC statement will be taking place.

Should the Fed announce the launch of additional quantitative easing measures, it may just lead to a sharp drop in USD/JPY, which in turn may put the BOJ on intervention watch again. For now, the pair is trading at around 77.70, but should it continue to fall and test former lows around 76.00, we may start to hear some concerns from BOJ officials about the “strength” of the yen.

[PipDiddy]

That's a 7-month high, baby! The yen rallied to 77.13 following the FOMC statement against the dollar in yesterday's trading. By the end of the New York session, USD/JPY had settled at 77.53, 33 pips below its opening price.

As you probably know by now, the Fed announced an open-ended QE as its latest plan to boost the economy. Consequently, the news weakened the dollar and allowed the yen to rally.

However, just because QE3 is on the table means that you should go crazy shorting USD/JPY. Some market junkies warn that the BOJ could soon intervene to weaken the yen. Remember that Japan relies a great deal on its exports and so, a strong currency does the economy more harm than good.

With that said, be on your toes for talks about intervention in today's trading, ayt? Be careful!

[PipDiddy]

Trading on yen pairs was extremely one-sided as the Japanese currency was dumped like a hot potato last Friday. With the markets engaging in a strong risk rally, USD/JPY rallied 86 pips to end the day at 78.39, while EUR/JPY rallied 213 pips to 102.84.

Once again, the yen felt the wrath of the risk-crazy markets as it was one of the weakest performing currencies last Friday. With traders still going on a risk-on frenzy (thanks to Bernanke and QE3!), low-yielding assets such as the yen had difficulty attracting buyers.

Today, our banker buddies in Japan will be celebrating a bank holiday, so action may be more subdued than usual this Tokyo session. If you're looking to trade the news with Japanese data this week, your best bet might be the BOJ rate decision on Wednesday. No one's really expecting a change in interest rates, but if the central bank rolls out more easing or if they hint at a future intervention, it could lead to further yen activity.

[PipDiddy]

Talk about starting off on the wrong foot! The yen scored losses across the board in yesterday's trading. USD/JPY ended the day 38 pips higher at 78.75 while EUR/JPY was up 42 pips at 103.22 by the New York session close.

Speculations about intervention from the BOJ dominated the yen's price action. With the central bank starting their 2-day meeting today, I wouldn't be surprised to see the currency react strongly to rumors about potential action from the bank.

So be on your toes! Tomorrow at 12:00 am GMT, the BOJ will be under the spotlight when it finally announces its monetary policy decision. Brace yourselves! Should the Japanese intervene or drop hints that they would soon resort to it, we could see the yen give up more pips to its counterparts.

[PipDiddy]

BOOOOOOOOORING! Due to the absence of market-moving events, the yen simply moved in a horizontal channel versus the dollar yesterday. USD/JPY started the day at 78.75 and ended it barely changed at 78.83.

Today should be quite different though as the Bank of Japan (BOJ) Interest Rate Decision is scheduled to happen a bit later. The market widely expects the central bank to keep rates unchanged at 0.10%, so the focus will probably turn to the accompanying statement and if we'll see intervention from the BOJ.

With the ECB doing “whatever it takes” to preserve the euro, we may see the BOJ follow suit and implement further easing. Japan’s economy is weak, and the external demand hasn’t picked up yet. The event doesn’t have a set time, but the announcement usually happens just before the European trading session begins (around 6:00 am GMT).

[PipDiddy]

Thanks to a fresh round of easing from the BOJ, yen pairs spiked up yesterday, although the gains were not sustained. Ultimately, USD/JPY closed just 2 pips higher for the day at 78.36.

Everyone, please welcome the Bank of Japan to the monetary easing club!

In a surprise move yesterday, the BOJ increased its bond purchase program by 10 trillion JPY, bringing the total to 80 trillion JPY. Not only did central bankers expand the program, but they also extended it to finish by late 2013.

While the announcement initially led to a yen sell-off, sparking sharp spikes in yen crosses, the excitement didn’t last. By the mid-London session, the yen had recuperated most of its losses.

Earlier today, Japanese trade balance figures were also released. Unfortunately, the deficit clocked in at 470 billion JPY, higher than the projected 370 billion JPY forecast.

Take note that Japan has an export dependent economy, which means that a strengthening yen is actually detrimental to the economy. Perhaps BOJ officials had anticipated worse trade figures and decided to jump the gun on its bond purchasing in an effort to weaken the yen.

No other hard data on tap today, but make sure you keep a close eye on what’s happening in other markets. As my momma always used to say, sentiment can change on a dime, so stay sharp!

[PipDiddy]

That didn’t last very long. The BOJ head honchos must be stomping their feet in frustration right now as their latest announcement of monetary easing failed to weaken the yen. USD/JPY fell by another 10 pips, while EUR/JPY slipped by 17 pips to 101.48. Yikes!

Yesterday the Land of the Rising Sun released its industries activity report. The data revealed a 0.6% contraction in July, which is more disappointing than the 0.3% growth in June. The Ministry of Economy, Trade and Industry also revealed that the decline is mostly due to weaknesses in construction and industrial output.

Meanwhile, the BOJ monthly report echoed the central bank’s sentiments in its last interest rate decision. In the report, the central bank downgraded its economic outlook, saying that economic growth has stalled while other economies are also experiencing weaknesses.

With the yen stubbornly strong and Japan’s trade still in the deficit territory, I’m not surprised that the BOJ is downgrading its growth forecasts. But the central bank better come up with an effective plan soon because from what we’re seeing, monetary easing just isn’t working for the yen.

[PipDiddy]

Another day of gains for the yen, another day of headaches for the BOJ heads. Thanks to risk aversion in markets, then yen capped the day stronger against its counterparts. USD/JPY slipped by another 13 pips to 78.13, while EUR/JPY fell from its 102.11 intraday high and closed at 101.44.

Though Japan didn’t release any economic report last Friday, the currency bulls pushed the yen higher as traders worried more about a Spanish bailout and overall economic growth in the euro zone and the U.S.

Will Japan’s reports over the weekend help weaken the yen? Last weekend the BOJ released its minute meetings, which basically repeated what was in the BOJ’s rate decision and monthly report. According to the minutes, the central bank is expecting high growth risks from the euro zone, the U.S., and the emerging markets. It’s also expecting inflation to stay at around 0% in the near future, but one BOJ member is also thinking of boosting inflation expectations by influencing currency rates.

Only the change in prices of services purchased by corporations (CSPI) is scheduled for released today at 11:50 pm GMT. The data is expected to show a 0.2% decline in prices for August, similar to what we saw in July. A higher-than-expected number could lift the yen a bit more as it shows that companies are willing to pay more for employment.

Good luck trading this week, fellas!

[PipDiddy]

There is just no stopping the yen! Despite the BOJ's dovishness, it continued to out perform most of its counterparts. USD/JPY ended yesterday's trading 29 pips below its opening price at 77.85. Meanwhile, EUR/JPY was down 72 pips from the day open at 100.63.

The minutes of the most recent BOJ meeting reiterated the central bank's concerns about the yen's strength. Then again, as Forex Gump said in one of his Piponomics articles, the BOJ's actions still pale in comparison to those of the Fed and ECB. So I guess it wasn't much of a surprise to see the yen ignore the dovish minutes.

Of course, it also helped the yen that risk aversion dominated market sentiment on renewed concerns about the euro zone.

Our forex calendar doesn't have any market-moving report from Japan today. This means that the yen's price action would probably be dictated by the market's mood swings. With that said, make sure you keep an ear out for updates from the euro zone!

[PipDiddy]

The list of the BOJ’s problems keep piling up! As if dealing with the resignation of Japan’s Finance Minister isn’t enough, the yen also ended another day with gains against its counterparts. And Japan didn’t even release any economic reports! What the heck caused the yen’s gains?

As I mentioned in my EUR and USD commentaries, violent protests in Spain weighed on risk sentiment and boosted low-yielding currencies against its high-yielding counterparts.

Of course, it didn’t help that Japan’s Finance Minister Jun Azumi stepped down from his post and took a higher position in his political party instead. His resignation was taken as a good sign by the yen bulls as it hinted that the BOJ won’t be intervening in the currency markets anytime soon.

Japan’s economic cupboard is once again empty for today, so you might want to keep an eye on the euro zone. If the protests in Madrid escalate or if the euro zone leaders show hints of disagreements over their banking union proposals, then we might see traders flock the low-yielding yen once again.