Daily Economic Commentary: Japan

Trading Discussion News and Economy
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The yen took a hit across the board as risk appetite came back in vogue last Friday, although it did hold its own against the USD. After gaining 4 out of 5 days last week, will the yen continue to rally versus the “mighty” dollar?

It seems that risk sentiment has shifted, as word on the European grapevine is that the EU will be backing up Greece by providing a bailout package. This allowed investors to release a sigh of relief, as this is a sign of more unity from the EU.

No major data is scheduled for release this week. Just take note that the minutes of the last MPC meeting are due today at 11:50 pm GMT. This could give more insight as to what was discussed at the last meeting, like the BOJ’s views on interest rates, quantitative easing measures and what’s the best sushi place in Tokyo.

Keep 6:30 am GMT, Thursday (April 15) marked though, as Bank of Japan Governor Masaaki Shirakawa will be delivering a speech. As the head of the BOJ, his words can have an significant impact on the currency markets.

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The Japanese yen must be popping a bottle of sake by now since it successfully erased some of its losses against the Aussie, euro, and pound. But would it be able to stay afloat now that the BOJ is split between extending and pausing its lending program?

The minutes from the latest BOJ monetary policy meeting showed that a couple of policymakers were very much opposed to adding to the central bank’s lending program. Aha, some dissenters in the ranks! Policymakers Tadao Noda and Miyako Suda insisted that there was no economic justification for further monetary policy easing. However, they were outnumbered as the rest of the policymakers voted to double the BOJ’s lending to commercial banks in order to fight deflation in the country.

Japan won’t be releasing any economic reports today so be aware of possible shifts in risk sentiment, which could affect the movement of the yen. Tomorrow, BOJ Governor Masaaki Shirakawa is scheduled to deliver a speech at 6:30 am GMT. Stay on your toes for hints on the BOJ’s future monetary policy moves!

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The yen came out mixed yesterday, pocketing some marginal gains over all the other majors except the CAD and CHF. The yen could be bound for a major move today. The question now is: which way will it go?

Japan as well as the other countries did not release any market moving reports yesterday. The lack of major economic catalyst caused the yen to just trade in a range-bound manner. Today, though, could be different with the issuance of the US’s CPI and retail sales figures. Positive figures from these accounts could spur risk taking which could be detrimental for the JPY.

Today at 6:30 am GMT, BOJ Governor Masaaki Shirakawa will deliver a speech at the Annual Trust Companies Association, in Tokyo. Any dovish statement could further weaken the yen.

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The yen found itself holding on to the short end of the stick when a slight case of risk appetite hit the foreign exchang markets yesterday. Although the yen ended the day hardly changed against the dollar, it gave up some ground versus the euro and the pound.

The only news of interest yesterday from Japan yesterday was a talk by BOJ Governor Masaaki Shirakawa. In his talk, he said that Japan has been showing signs of sustainable recovery, thanks to the pick up in global demand for its exports and the bank’s stimulus measures.

No data coming out today, so watch out for data coming out of the US for clues on where the yen is headed.

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Karate chop! The yen waxed in and waxed out against higher yielders, with its most impressive hits coming against the euro. The EURJPY dropped almost 100 pips to close at 126.37.

Some analysts are pointing to the recent GDP report from China - which printed a ridonculous figure of 11.9% growth last quarter – as the primary reason why the yen gained yesterday. The argument is that China will need to curb their growth and one way they could do this is by letting the yuan appreciate. This caused some risk aversion to crawl back into the market, allowing the yen to rally. For more insight about China’s yuan issue, take a look at my buddy Forex Gump’s latest post.

With no major data coming out today, keep an eye out on news scheduled for release in other countries, as well as for any shifts in risk appetite. As I’ve said time and again, risk sentiment can change on a dime, so be careful!

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Thanks to risk aversion, the Japanese yen enjoyed quite a nice run before last week came to a close. News of the Goldman Sachs fraud pushed the USDJPY to the 92.00 area during Friday’s US trading session.

When news of SEC’s fraud accusation to Goldman Sach’s broke out, equities fell and traders began to unwind their carry trades. Since most carry trades are financed through the lower-yielding Japanese yen, this unwinding caused yen pairs to lose ground. The AUDJPY tumbled to the 85.00 area while the EURJPY slid below 125.00.

Today, Japan is set to release its household confidence report and tertiary industry activity index. Household confidence is expected to improve in March as the index could climb from 39.8 to 40.2 during the month. Meanwhile, activity in the services index is expecting a 0.9% slowdown for February after enjoying a nice 2.9% pickup in January. Watch out for the actual figure at 11:50 pm GMT.

On Wednesday, Japan’s trade balance will be released at 11:50 pm GMT. Their trade surplus could widen from 0.47 trillion JPY to 0.66 trillion JPY, possibly reflecting an uptick in exports for the month of March. Stronger than expected figures could allow the yen to push for more gains.

No other economic reports are due from Japan for the rest of the week but keep your ears open for BOJ Governor Masaaki Shirakawa’s speech on Thursday. Be on the lookout for his assessment of the Japanese economy and for hints on the central bank’s future monetary policy moves.

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The yen choked late in yesterday’s session and lost all of its gains and then some over all the other major currencies. The yen bulls were caught off guard by a new development regarding Goldman Sachs that forced them to hand over their lead.

The yen was well on its way to a landslide victory when suddenly the fraud charges that was brought on Goldman Sachs by the SEC only showed a 3-2 vote. The vote count indicated that the SEC did not have a very strong case against the company. This somehow lifted the market’s optimism which led to a broad-based yen and dollar selling.

Japan just released its March household confidence report and tertiary activity index in February. The former reached 40.9 in March from 39.8 while the latter also came in better at -0.2% in February against the -0.9% expected. The results, though, did not have much impact on the yen’s short term valuation.

No other economic reports are due today in Japan. The yen, however, could experience some volatility with the release of the UK’s CPI, Germany’s Zew economic sentiment index, and the Bank of Canada’s interest rate decision. So you better stay tune!

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No thanks to improved risk appetite, the yen found itself holding on to the short end of the stick in yesterday’s trading session. It lost against all the major currencies like the pound, the euro, the Aussie and yes, even the dollar.

The only data of interest today is Japan’s trade balance at 11:50 pm GMT. The country’s trade balance, which measures the net difference in value between imported and exported goods, is predicted to show a ¥660 billion surplus in February, up from the ¥470 billion surplus seen the month before. Looks like the Bank of Japan is getting exactly what it wants, a weakening yen and rising exports…

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After taking a beating to start the week, the yen finally regrouped, which led to mixed trading against other majors. The USDJPY remained steady, ending trading up just 5 pips at 93.20, while the EURJPY closed at 124.86, down 30 pips from its opening price.

Trade balance figures released late yesterday came in to meet consensus, printing a surplus of ¥660 billion. This was a significant increase from the ¥470 billion figure printed in February, and as export rose by 43.5% in March. This marked the 4th consecutive month that exports have risen!

An interesting detail to note is that exports to China rose by 47.7%. Now, China has been making moves to curb their crazy, ridonculous double digit growth, as they fear that they could get hit by a run of sharp rise in inflation. If the Chinese continue to make more tightening moves, will Japan take a hit? Let’s see how this plays out over the next couple of months.

No hardcore data on deck for the rest of the week, but BOJ Governor MasaakiShirakawa is due to speak at the Economic Club in New York City. He could drop more clues about what direction the BOJ wants to take in terms of quantitative easing measures.

So to end… Exports are on a rise in Japan, but let’s see how long that continues. Tonight, Shirakawa will be speaking, so make sure you got your remote control by your side as you switch between the news channel and the NBA playoffs.

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The Japanese yen had a mixed performance yesterday as it strengthened against the euro, weakened against the greenback, and ended almost unchanged against the pound and the Aussie.

Japan didn’t release any economic reports yesterday, which was probably the reason why the yen couldn’t establish a clear direction.

In his speech yesterday, BOJ Governor Masaaki Shirakawa discussed the economic and financial problems of both Japan and the US. He compared Japan’s “Lost Decade” with the recent US financial crisis and concluded that it was overconfidence that caused the bubble to burst. He added that monetary policy also plays a huge role in preventing another crisis, saying that the central bank should focus on both short-term and long-term price stability in order to achieve sustainable growth.

Today, Japan will release its all industries activity index. The index for February is expected to dip by 1.3% after rising by 3.8% in January, signaling that overall business activity slowed down. A weaker than expected reading could be negative for the yen but don’t forget that the tertiary industry activity index, which accounts for almost 60% of overall business activity, came in stronger than consensus early this week. Could we be in for an upside surprise later on? Stay tuned for the actual figure at 4:30 am GMT!

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Friday was another day of disappointment for the yen bulls as the JPY incurred a broad-based loss against all the other majors. Will the JPY be able to stage a rally this week? Stay tune.

Japan’s all industries index dropped more-than-expected by 2.3% in February, suggesting that business activity in Japan had become more stagnant than the economists’ estimate. It was only projected to dip by 1.5% during. January’s figure was also negatively revised to 3.4% from 3.8%.

The yen continued to drop when news that Greece asked $55 billion from the IMF and the other EU-member nations to finance part of their dues upped the investors’ confidence in the market, leading them to sell the safer currencies like the yen.

This week will start for Japan with the release of its retail sales data on Tuesday. The gain in Japan’s year-over-year retail sales in March was anticipated to have slowed to 3.7% from 4.2% due to the 0.6% monthly dip that it had during the month.

On Thursday, Japan will issue a bunch of economic data which includes the household spending account, Tokyo and national core CPIs, unemployment rate, and average cash earnings. Despite the projected 0.2% drop in average cash earnings, household spending is still seen to have increased by 0.7% on a yearly basis. Meanwhile, the country’s Tokyo core CPI in April is estimated to be at -2.0% from -1.8%, indicating that the country’s deflation is worsening. The national core CPI, however, likely remained at -1.2% in March. On a separate note, Japan’s unemployment rate probably stayed at 4.9% as well in March.

So among the aforementioned data, the only positive one is the country’s industrial production since it will possibly print a 0.7% advance last month following a 0.6% contraction in the previous period. The result, by the way, will be reported on Friday.

Later that day, the Bank of Japan will also make their interest rate decision. Given the overall drop in general prices in Japan, the BOJ will most likely keep its interest rate unchanged at 0.10%. Keeping the interest rate low, though, would be bearish for the yen.

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The absence of any high-profile economic event yesterday caused the yen to trade mixed against other major currencies yesterday. The yen was able to gain slightly versus the greenback, but loss out against the pound and the euro.

The only important data scheduled to come out today from Japan is its retail sales report at 11:50 pm GMT. It is predicted to show that sales grew fell 0.6% in March, opposite the 0.9% increase seen the month before. Year-on-year, however, this translates to a 3.6% rise. If the actual figure reported is higher than expected, we could see the yen receive some buying support just like in March.

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Skadoosh! The yen benefited from a sudden rush of risk aversion, as investors unwound their positions in higher yielding assets. The CADJPY, EURJPY and GBPJPY all fell by over two hundred pips!

Risk aversion was the major theme of yesterday’s trading ball, as investors became more alert when more news came out of the euro zone regarding Greece’s debt issues. If this Greece issue continues to remain unsolved and more problems arise, I think could see traders become tighter in their trades, as they try to reduce their positions in risky assets. This could benefit the yen, as traders normally use the yen as a funding source for these positions.

The yen also got a boost from retail sales data, which indicated that sales rose by 0.8% during the month of March. This was good news, as it was expected that sales would fall by 0.6%! This brought the year on year growth to 4.6% and indicates that consumer demand is starting to pick up.

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With Japanese traders on a holiday yesterday, the yen’s major counterparts took advantage and pocketed some gains of their own. At the end of the day, the yen was markedly weaker against the greenback and the Aussie. Still, it was able to put up a good fight against the euro and the pound.

My my, it seems like the debt problems in the West could spread all the way to the East! Well, at least that’s what many are speculating. Fears of a debt pandemic caused Japanese stocks to slide down yesterday, dragging the yen down.

Could the yen be poised for another day of losses? Japan is set to release its inflation (uhh, more like deflation) reports, namely the Tokyo core CPI and national core CPI, at 11:30 pm GMT today. Both accounts are expected to post another round of price declines for this month, highlighting the fact that Japan is deep in deflation. Also due today are Japan’s household spending data, manufacturing PMI, and industrial production report. Household spending is projected to rebound by 0.7% year-over-year in March, following an annualized 0.5% drop in the previous month. The March industrial production report is also expected to print a rebound over the 0.6% decline seen in February.

Better than expected figures could lead traders to focus on the improvements in the Japanese economy instead of dumping the yen on debt contagion fears.

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The yen incurred a loss against all of the major currencies excluding the dollar yesterday as risk appetite seemed to have made a comeback again. The US’s S&P 500, for one, closed with a 1.63% gain, suggesting that traders could have funded their equity holdings with the cheaper yen.

A bunch of economic data came out of Japan yesterday. Japan’s manufacturing PMI reached 53.5 from 52.4 while the year-over-year household spending posted a stellar gain of 4.4% which is more than 6 times of the market’s 0.7% estimate. The preliminary industrial production in March, on the other hand, only advanced by 0.3%, lower than the 0.9% consensus.

Japan’s inflation figures and unemployment rate were also reported. The year-over-year Tokyo core CPI for the month of April worsened to -1.9% from -1.8% but still better than the -2.0% forecast while the national core CPI remained at -1.2% in March. Japan’s unemployment rate, on the one hand, got worse to 5.0% from 4.9%.

Given the latest numbers above, it looks like Japan’s economy is still very far from getting back on track.

Today, the Bank of Japan will have its interest rate decision. The bank is expected to keep its interest rate at 0.10% again given the steep slide in general prices. Some economists believe that the bank would also expand their credit facility. In any case, the bank is also seen to upgrade the country’s growth forecast but such would not keep it from keeping its options open for additional monetary easing. Further easing, as we know, would be bearish for the yen.

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Yikes! Deflation continues to haunt the Japanese economy as pointed out by the BOJ in their rate statement last Friday. This caused the Japanese yen to lose ground against most of its major counterparts that day. Would it be able to bounce back this week?

The yen could be off to a slow start this week since Japanese traders are on a holiday until Tuesday. Talk about taking a hiatus! Aside from that, Japan’s economic calendar looks barren for the first week of May with only the monetary base data due on Thursday. This report, which measures the total amount of money in circulation, could print a 2.4% year-over-year increase in April. A higher than expected figure could be good for the yen since an increasing supply of money could lead to higher spending and investment. Still, this report could have a minimal impact on the yen’s price action.

What could have a larger impact on the yen’s direction this week is China’s recent monetary policy tightening move. Over the weekend, the People’s Bank of China announced that they will raise the reserve requirement for banks to 17% in order to control their economic expansion. Note that this is the third time that the central bank has raised the reserve requirement during the year. Such policy move could reduce demand for commodity-based currencies, whose economies are largely dependent on trade with China. This could then cause an unwinding of carry trades, which could boost the yen.

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The yen ended up holding on to the shorter end of the stick yesterday, as investors chose higher-yielding currencies over it. The currency lost against the dollar, the euro, the pound, and the Aussie.

Risk aversion stemming from the news that China raised its reserve requirement proved to be short-lived, as the yen immediately gave up all of its gains against other major currencies when the European trading session rolled along. Once again, investors used the news from China simply as an opportunity to buy the yen crosses at cheaper levels. Hah - it looks like Japan’s weak economic fundamentals would continue to weigh down the yen in the days and weeks to come!

No data coming out of Japan today so the yen’s price action would most likely be driven by news coming out of other major economies, particularly the US pending home sales report later tonight.

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I clicked on the radio yesterday, and I swear I heard B.O.B’s latest song, “Nothing on Yen,” at least six times – one time for each of the yen crosses! As risk aversion hit the markets yesterday, traders began to unwind their positions in risky assets, which of course benefitted the yen.

It’s going to be a quiet week in Japan, as they are celebrating Golden Week. If you ask me, if risk aversion continues to dominate the currency markets things will continue to look golden for the yen. Traders are still scared that the Greece’s debt issues will be a source of contagion to other European countries. As long as this continues, we may see traders shy away from higher yielding assets.

Looking ahead, take note of economic reports and developments from other countries more specifically: the UK elections, the eurozone debt crisis and labor data from the US.

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Yen crosses suffered a major bloodbath yesterday as the mighty Japanese yen wielded its samurai sword and raided massive gains. With risk aversion as its ally, could the yen continue to draw strength from the unwinding of carry trades?

Japan didn’t release any economic data yesterday and won’t be releasing any top-tier reports today. Still, the yen isn’t worried about the lack of economic catalysts since it’s counting on the worsening euro zone debt concerns for a boost. After all, this debt drama has caused the EURJPY to plummet by more than 500 pips in the past couple of days so stay on the lookout for more news on the euro zone debt mess!

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“Fat Fingers” – the term analysts are using to describe yesterday’s huge yen rally. Rumor has it that the unprecedented $1 trillion drop in US equity values were caused by… get this, user-error. The news is that a large trading desk accidentally sold $16 billion worth of future contracts, instead of $16 million.

The order shook the markets and triggered a wide-reaching case of risk aversion. At the end of the day, the yen found itself ahead of all the major currencies. The USDJPY dropped back to the 88.00 handle while the GBPJPY fell more than 1,000 pips. With such a strong move, expect to see a little bit of retracement today, especially as traders close shop for the weekend.

Japan’s economic cupboard is report-free today so watch out for news coming out of major economies to determine where the yen is headed.