Daily Economic Commentary: Japan

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The yen made strong gains last week as people are becoming more anxious about the economic recovery. The USDJPY pair closed the week at 92.41, its lowest level since mid-February this year, while the EURJPY nearly hit 127.00 after opening the week at 134.29! Could we see the yen continue this strong run this week?

No economic reports were released last Friday from Japan. The yen was mainly driven by risk sentiment, and we saw the yen gain after a short retracement on Thursday.

Today, a couple of low-impact reports are coming out as the revised Industrial Production m/m and Household Confidence reports are due at 4:30 am GMT and 5:00 am GMT respectively.

Later this week, the BOJ will be releasing its interest rate decision on Wednesday. However, with rates already at just .10%, we cant really expect a rate cut... Be on the lookout for statements regarding the BOJ’s outlook of the economy. The last rate decision showed that BOJ had a more positive outlook on the economy. What could be said this time around?

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The JPY returned some of its gains from last week as the USD/JPY rebounded from the 92.00 handle and the EUR/JPY bounced up from 128.00. Was this merely a short-term correction or a reversal signal?

Industrial production data for May was revised downwards from 5.9% to 5.7%. This report had minimal impact on the JPY, which kept climbing for the first half of the day. Household confidence posted an improvement from 35.7 to 37.6, beating the forecast at 36.8.

Despite the strong economic data from Japan, the JPY found itself tumbling down as the Nikkei fell for the ninth straight day yesterday. Asian markets stumbled on concerns about company earnings and doubts for a sustained global recovery.

No economic reports are expected from Japan today, which leaves JPY crosses vulnerable to risk sentiment. With a bunch of economic reports due for its safe-haven counterpart, the JPY has much to gain if US economic data disappoints. Otherwise, JPY pairs could be in the mood for consolidation as traders anticipate the BOJ monetary policy statement tomorrow.

[ForexGump]

It was a very tough day for the JPY as it got beat by most of the other currency players. Its only ‘win’ came against the CHF. The JPY’s movement was very volatile especially in the US session given the mixed economic data results in the US. It then started to lose and concede following some better-than-expected earnings reports from Goldman Sachs and Johnson & Johnson.

No economic reports were due in Japan yesterday. The JPY was mainly driven by the market participants’ sentiment in the capitals markets.

Today will be different with the Bank of Japan’s target interest rate decision. Having an almost nil interest rate of 0.10%, the bank has pretty much no room to slash it further. Given this and the bank’s already massive quantitative easing program, it is left with only a few options to try to perk up its economy. One of these few remaining options would be the extension of the emergency-credit programs to firms by at most 2 months. Such would provide some slack for both the firms and investors. Any extension of the bank’s debt programs would be bearish for the JPY. This, however, would be to their liking in a way.

[ForexGump]

The JPY took another beating yesterday as investors let go of the currency in favor of its riskier counterparts. The question is whether the sell-off would persist today, given the sharp depreciation of the JPY across the boards.

Interest rate announcements are usually a big deal for the market but it seemed that the Bank of Japan’s benchmark interest rate decision was considered a non-event by traders. With rates at an all-time low at 0.10%, it really has nowhere to go. In any case, the Bank of Japan lowered its estimate for Japan’s growth once again as the country’s export industry remains shaky. Economists believe that Japan’s interest rates will remain at very low levels well after the world recovers from the recession.

Today, the BoJ is set to release its monthly report at 5 am GMT. This contains the data the bank used in deciding what to do with the country’s benchmark interest rate. It also provides an inside look on how the bank sees the current and future economic situation of Japan.

[ForexGump]

The yen bounced back yesterday, after it got sliced up like a sushi roll the past couple of days. There was some volatility, especially during the US session when earnings reports helped create some market noise. Ultimately, the USDJPY and EURJPY pairs closed lower, at 93.78 and 132.63 respectively.

The BOJ released its monthly bulletin report yesterday. Once again, the BOJ expressed a somewhat optimistic stance, as it upgraded its outlook on the economy. The bulletin said that the BOJ said that it is very likely that the Japanese economy will improve over time.

No reports are scheduled for release today. With the market being very sentiment driven as of late, be careful of any shifts that could cause extra volatility as we end the week.

[ForexGump]

Political instability in Japan is making the JPY lose some of its safe-haven appeal. On the economic agenda, the BOJ's monetary policy meeting minutes and trade balance data could spice up the price action of JPY pairs.

Several lawmakers are attempting to overthrow Prime Minister Taro Aso but failed to gather the required amount of signatures to do so. Confidence in the Prime Minister's leadership has already been waning ever since the Japanese economy stumbled towards deflation. The conflict worsened after Taro Aso said that he is planning to dissolve the lower house of parliament soon.

The possibility of currency intervention remains a threat for the JPY, judging from the comments of the newly-elected Vice Finance Minister for International Affairs Rintaro Tamaki. "We’ll make judgments based on whether excessive movements in the currency market will adversely affect the economy. If you were to ask me if we’d never intervene, the answer would be no," he said.

Minutes of the latest monetary policy meeting are due at 11:50 pm GMT today. This should provide more insight on the BOJ's interest rate decision and economic outlook. Trade balance data is set for release on Wednesday 11:50 pm GMT. The surplus is expected to widen from 0.22 trillion JPY to 0.51 trillion JPY.

[ForexGump]

The JPY is commonly known by investors as a relatively “safe” asset. Well, it was totally not the case for the JPY yesterday as it lost its grip against ALL the major currencies. Then again, you can say that it was safe if you went short on it.

Japan was low-key yesterday in terms of tier one economic releases. Life was sucked out of the JPY due to an increase in risk appetite in the US capitals markets. The bondholders’ last minute rescue of the CIT group together with the better-than-expected earnings results of several US firms enhanced confidence in the markets once again. The JPY was taken under as investors switched to higher yielding assets.

Details on the Bank of Japan’s monetary policy minutes were just released earlier today. In their meeting last month, the board members agreed that Japan’s economic conditions had stopped deteriorating. They also concurred that the BOJ should determine the length of their credit-policy measures individually since each measure has a different purpose and framework. Last week, the BOJ extended its debt buying program from banks until the end of 2010 to provide them more liquidity.

In the mean time, several US firms will report their second quarter earnings results during the US session. Fed Chairman Ben Bernake will also issue a speech. Positive earnings from firms and encouraging comments from Bernanke would once again spur risk appetite. Such would then be bearish for the JPY.

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Volatility took the pair everywhere yesterday but one-directional it was not! It started out the European session at a weak note and lost some ground versus the EUR and USD. This did not last long though as JPY bulls just bought up the currency during the US afternoon trading session.

Later 11:50, we’ve got Japan’s trade balance for June on tap. Compared to other nations, Japan’s trade balance, which measures the difference in value between imported and exported goods, has a more significant value in determining the health of the country’s economy. The reason is simple: Japan’s export industry is the fourth largest in the world. The consensus is a 510 billion yen surplus, up from last reporting period’s surplus of 220 billion yen.

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The yen attempted to make a strong push yesterday, but ended the day with minimal gains against the USD and EUR as ranges pretty much held for those pairs.

Late yesterday, the Japanese trade balance report was released. The release was in line with expectations, as Japan hit a surplus of ¥508 billion. It was the first time that the surplus widened in 20 months. The reason behind the increase was due to slowing down of the contraction in Japanese exports. Chinese growth – reported to be at 7.9% last quarter – has also helped spur demand for Japanese products. China is now currently Japan’s number one export customer.

The only report coming out from Japan for the rest of the week is the All Industries Activity m/m report. The report is a low impact report, so it will probably not have a significant impact on the markets. With the markets being heavily driven by risk sentiment as of late, watch out for any shifts in risk assessment.

[ForexGump]

The USD/JPY staged quite a strong rally yesterday while JPY crosses moved higher. The USD/JPY found itself back above the 95.00 mark as the JPY underwent a massive selloff.

Despite the lack of economic reports from Japan yesterday, the safe-haven JPY was dumped on account of the strong rally in US equities. The all industries activity index is due from Japan at 4:30 am GMT today and this report should have a minimal impact on the JPY. An increase of 1% is expected to follow last month's 2.6% uptick. Expect JPY pairs to be strongly influenced by risk flows, as usual.