Daily Economic Commentary: Japan

[ForexGump]

Lots of movement from yen pairs on Friday, as the markets reacted violently to the US NFP report. The USDJPY pretty much stuck in its range and closed near its opening - could it be poised for a breakout? The EURJPY on the other hand, hit a new low at 129.05, before rising all the way back to close positive for the day at 130.77.

Over the weekend, IMF officials commended the new Japanese government for their plans to add more stimulus in order to boost spending. They said that the stimulus was needed in order to create more private sector demand. Take note, the Japanese economy is heavily dependent on exports but have been left gasping for breath during this recession. To counter this, part of the new government's plan is to stimulate growth from within. It's good to see that the new government recognizes that they have to think of new methods in order to drive the Japanese economy.

Also, late yesterday, Finance Minister Hirohisa Fujii also said that while Japanese officials need to discuss exit strategies for all their stimulus, it would be too early to actually implement them. He said that the Japanese economy still remains fragile and weak. This supports the government's cautious approach that they are taking towards recovery.

Fujii also did some verbal jaw boning on Saturday, as he said that there could be intervention if strong one way moves continue. Of course, by one way moves, he is talking about the recent run that has pushed the yen higher and higher. BOJ officials want the yen to weaken, so that it can help make Japanese exports more attractive.

Not much news coming out of Japan this week. On Wednesday, the leading indicators index is due at 5:00 am GMT. Seeing as how the index is based on data that has been previously released, we can probably expect the markets to react quietly.

[ForexGump]

The JPY was hurt by the Japanese Finance Minister's comments about taking action if the JPY moves in a "biased direction" which suggests that the new political party is still biased towards currency weakness. It seems like Finance Minister Fujii is succumbing to political pressure... And that can't be good for the JPY.

At the G7 meeting, Fujii said that intervention is a possibility if "currencies show an excessive move in a biased condition"... Well, we know that by "biased" he is referring to an upward movement in the JPY. But I'm not quite sure by what he means with "excessive"... Appreciation of the Japanese currency has been hurting some of Japan's top companies, such as Toyota and Canon. Could the Finance Minister be all talk and no action? Maybe we'll find out soon enough...

No economic reports are due from Japan today. Traders could take a bearish sentiment for the JPY after Fujii's verbal intervention. But plenty are speculating that an actual intervention is unlikely so the JPY could remain unfazed.

[ForexGump]

The yen was kept under the shadows of the comdolls given the advance in commodity prices and equities. The surprise hike in the RBA's interest rate sent both gold and oil surging. Risk appetite once again benefited the high yielders, particularly the Aussie and the Loonie, over the yen.

No economic report were released in Japan yesterday. The RBA's surprise interest rate hike set the global market's positive tone early on. Commodities were given a huge boost with gold touching a record $1,045/ounce and oil trading near $71/barrel again. Risk appetite persisted during the whole day which led investors to favor the higher yielding assets over the yen.

Japan's current account balance for the month of August is on cue today at 11:50 GMT. The account is projected to expand slightly to 1.17 trillion JPY from 1.16 trillion JPY. Though, the report's impact on the market could be a bit muted since the trade balance figures were already released 20 days before.

No other updates are scheduled in Japan today. The JPY may suffer yet again if investors continue to have a positive view on the markets.

[ForexGump]

Unlike the dollar, the yen was taken on a rollercoaster ride by traders yesterday as it advanced during the Asian session before eventually fading most of its gains when the US session went underway.

Japan's leading index which was released yesterday came out slightly lower than anticipated. It printed a reading of 83.3 versus the forecast of 83.4. Still, this is the fifth straight month of increase indicating that Japan is on its way to recovery and that things have stopped worsening. I suspect that improvements in the export and import sectors would lead the country out of its economic slump.

Speaking of the export industry, Japan's August current account balance released a few hours ago improved to positive 1.23 trillion yen from 1.16 trillion the month prior. The reason for the increase? The pickup in global demand for Japan's exports.

For today, watch out for the report on Machinery Orders for August at 11:50 pm GMT. The consensus is that orders increased by 2.2% from the month prior. If the report comes out higher, we could see the yen gain further ground against other major currencies.

[Alex the Gr8]

I hate to jump on the bandwagon - but barring a real surprise in economic data during the US session, we may see continued weakness.

The Yen continued to gain versus the Dollar reaching its highest level since January as Japan Finance Minister Hirohisa Fujii signaled that policy makers are comfortable with their currency's strength. Overall, USD/JPY traded with a low of 88.00 and with a high of 89.38. Core Machinery Orders will be released overnight and expected to rise by 2.2% versus -9.3% decline prior.



USD/JPY-Last: 88.25


Resistance
88.75
89.15
89.40
Support
88.00
87.50
87.10

[ForexGump]

The yen was like an assorted sushi platter yesterday, as it went through some mixed trading. The yen posted minimal gains against the dollar, with the USDJPY pair closing at 88.48, but fell slightly against the EUR, as the pair rose to 130.77.

Machinery orders data came in late yesterday, coming in short of expectations. Orders were initially projected to have risen by 2.2% in the month of August. It was this was a nice improvement, as orders fell by 9.3% in the month of July. With demand falling, this is hurting capital spending in Japan. In the past, capital spending accounted for much of Japan’s growth. Thus, if it continues to remain low, a quick recovery looks dim for the Japanese economy.

After going on a lengthy run, yen buying has cooled the past couple of days. With it being a Friday, could we see traders cover their short positions and take profit on yen trades? Watch out and good luck trading!

[ForexGump]

The Yen has been losing ground against its fellow safe-haven currency, the greenback. Similarly, a couple of Yen crosses (AUDJPY and EURJPY) have shown no mercy as they rallied Thursday and Friday last week.

The major event for this week is the BOJ rate statement. Although the rate decision itself is slated to be a bit of a non-event as usual, traders are wary about Finance Minister Fujii's comments on the JPY's strength. On the one hand, Fujii could refrain from propping up the JPY like he used to - and traders could interpret this as a bearish signal for the JPY. On the other hand, the BOJ could shock the markets if they mention that the time to exit their easing policies is fast approaching. Watch out for this event on Wednesday!

For today, Japan has data on bank lending and M2 money supply due today but both reports are not expected to make a high impact on the JPY's movement. Still, bank lending was up by 1.8% in August and could post another increase in September. M2 money supply rose by 2.8% in the past two months and could continue its uptrend for another month.

If the Yen pairs aren't in the mood for consolidation ahead of the BOJ statement, the odds are stacked against Yen rallies since traders anticipate the possibility of currency intervention from the BOJ. The rapid appreciation of the Yen has not been helpful for Japan since it dampens demand for their exports.

[ForexGump]

Despite some speculations that the Bank of Japan would let its corporate debt purchase programs expire as scheduled, the JPY still slid across the board in yesterday's trading. Weakness was very much felt against the Kiwi and the Aussie as both yen pairs approached its yearly highs yet again.

No economic reports were released in Japan during the Asia session yesterday due to a bank holiday. However, there were some reports that said that the BOJ would start withdrawing its nontraditional monetary easing policies by letting its asset-buying program expire as scheduled on December 31. Based on the report, firms in Japan have regained better access to private funding as credit conditions improve.

The BOJ will hold its interest rate decision later today (schedule is tentative). While the bank is still expected to leave the overnight call rate unchanged at 0.1%, some market participants believe that the MPC will start discussing its exit strategies on its still on-going nontraditional monetary easing policies. On the other hand, some also believe that the bank could postpone its decision to let the programs expire on time since this will further strengthen the yen versus the greenback. The yen has gained against the dollar by about 3% already just last month. If the yen continues to rise, Japan's exports industry would suffer, thus, dragging the country's recovery.

[ForexGump]

The yen traded mixed yesterday as it rallied early during Asia against most major currencies but its gains eventually faded once the US session came rolling along. For today, all eyes will be on the BOJ as they are set to announce their decision on the country's benchmark interest rates.

The country's rate currently stands at 0.10% and no changes are expected for this month. Because of this, investors would probably be more concerned with the accompanying statement to give them clues on the bank's outlook on Japan's economy. I did a short article on this issue in my blog. Go ahead and check it out if you want to know more about the matter.

[ForexGump]

Yen trading was mixed in yesterday's session. The yen attempted to make strong moves against its major partners, but eventually closed only slightly up against the USD while getting bullied by its European counterparts.

As expected, the BOJ kept their base rate at 0.10%. The BOJ also upgraded their outlook on the economy, saying that recovery was underway. Governor Masaaki Shirakawa also said that it seems that companies are having an easier time to access funding and that the central bank would most likely withdraw credit easing programs later this year. Shirakawa also said that he understands that while big companies are having an easier time getting funding, smaller firms are still suffering and that they are taking this into consideration.

Shirakawa warned that nobody should take this as a sign that they will hike rates in the near future. Many believe that the rate will be kept at its current level until late 2010.

Tomorrow, at 6:35 am GMT, Shirakawa will be delivering a speech at the 46th Annual Credit Cooperatives meeting. Given that the forum is about credit conditions, watch out for any further news regarding what he (and the BOJ) believe must be done regarding credit programs.