Daily Economic Commentary: Japan

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Daily Economic Round up of data from Japan!

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The yen was the biggest loser in yesterday’s trading session as it fell sharply versus both the dollar and the euro. Positive data that came out of Japan gave a nice background for risk appetite to slightly pop its head back into the market.

Household spending surprised when it showed that spending increased by 0.3% instead of the 1.5% decline initially expected. Employee earnings were slightly less bad when it printed a 2.9% decline in earnings. The forecast was at -3%. The manufacturing purchasing mangers’ index shared the same somewhat positive tone. It came out at 48.2, an improvement from last reporting period’s 46.6.

The Tankan manufacturing index is due today at 11:50 pm GMT. This could potentially cause some waves in the foreign exchange market because it deals with Japan’s main industry – the manufacturing industry. The survey attempts to assess whether the country’s manufacturing industry is improving or worsening by using a positive/negative scale. A reading above 0 means that conditions are improving. Economists are expecting the survey to print -43.

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The Tankan index, which is one of the most-awaited major economic reports from Japan, wasn’t as strong as expected. The manufacturing index rose from -58 to -48 and failed to meet expectations at -43. Meanwhile, the non-manufacturing index climbed from -31 to -29, which is slightly lower than the consensus at -26. Consolidation was seen among JPY crosses in anticipation of this report. However, no large spikes took place after the release of the weaker-than-expected numbers.

Only the nation’s monetary base is due today. This report, which measures the change in the total quantity of domestic currency in circulation and in banks’ deposits, is not particularly market-moving. However, it is correlated with interest rates since an increasing supply of money leads to additional spending and investment. Later on, this contributes to inflation which may cause the central bank to raise interest rates. An increase of 8.1% is expected to follow the previous reading of a 7.9% uptick.

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The USD/JPY hit the ceiling near the psychologically significant 97.00 level yesterday before sliding lower. Slight improvements in US employment data allowed the JPY to regain ground against the USD towards the end of the day. Prior to this, the highly-anticipated economic data from Japan, the Tankan manufacturing report, gave the JPY a slightly weaker tone as it indicated that economic prospects are not as bright.

The Tankan manufacturing index rose from -58 to -48, falling short of forecasts at -43. The non-manufacturing index also failed to meet expectations at -26 as it inched from -31 to -29. Components of the report show that businesses plan to continue cutting down on spending and investment, implying a bleaker outlook for earnings and employment.

No economic reports are due until the end of the week. The JPY could sustain this weak tone for the rest of the day as demand for riskier assets rises ahead of the US NFP report.

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Yesterday was a huge day for the JPY as it bullied all of the other so-called currency big boys to submission. The JPY managed to take out most or all of its losses for the past 5 days. A bearish engulfing candle (the most recent long candle (red) that towers over the green ones) is now noticeable in the daily charts of the samurai pairs.

Given the JPY’s strength, one might suspect that something spectacular happened in Japan yesterday. This was not the case, however, since Japan just sat on the sidelines yesterday in terms of economic reports. The events in the US (huge unexpected NFP unemployment change, etc) led investors back to the safety of Yellowstone’s and Akkido’s caves. The JPY surged as a result of the panic in the US.

No economic reports are due in Japan today. The US will also have a break today to celebrate its independence day. Trading of the JPY will be limited and constrained, in my opinion, for these reasons.

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Yen trading was particularly reserved, just like most major currencies, as the US heads into its long Fourth of July weekend... Versus the dollar, the yen closed the week at 96.15 price level from its 95.81 open during the Asian session. Japan’s economic cupboard was completely bare last Friday, which also muted any movement in the currency’s price action.

No hard market-hitting economic data ahead this week. Because of this, the yen’s price action in the foreign exchange market would most likely be determined by degrees in risk appetite as well as the underlying fundamental background of currencies pitted against it. In any case, we will see Japan’s leading index for May later at 5 am GMT. The forecast currently stands at 77.00%, slightly higher than last reporting period’s 76.2%.

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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.

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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.

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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.