Daily Economic Commentary: Japan

It was a week to forget for the JPY last week as it lost further support against the other majors. Driven by better-than-expected US corporate earnings and economic updates, higher yielding assets such as the AUD, EUR and GBP surged against the JPY. If there�s any consolation, the JPY managed to have a meek recovery to end the week last Friday as investors showed a little tentativeness over the market.

Japan�s all industries activity for the month of May was released last Friday. The rise in the index unexpectedly slowed to 0.7% after climbing by 2.6% in April. The consensus was for a 1.0% jump. Though, this report did not really have a big impact in affecting the JPY�s movement.

The JPY lost ground during the second part of the Asia session until the start of the US session. Risk appetite remained to be the main factor that pulled the JPY down. Investors, however, were not as encouraged in the markets when the US trading session opened. Perhaps they took that as an opportunity to cash in their weekly gains since no major economic update were due in the US that could propel the higher yielding assets further up. The capitals markets ended the session mixed. The JPY was able to gain some support.

No top tier economic reports are due in Japan today. In the US, data on new home sales in June will be published at 2:00 pm GMT. Any increase in the figure would be bearish for the JPY since such would induce risk tolerance. The figure is expected to have expanded to 354,000 from 342,000. The JPY may weaken versus the others in anticipation of the report.

The JPY extended its losses in yesterday�s trading session as investors sought higher-yielding assets. Will investors continue to sell the JPY in favor of higher yielding assets to satiate their appetite for risk this week? Given how the JPY pairs are approaching their respective previous month highs and today�s relatively light economic calendar, it seems that some consolidation is in the cards for the JPY. Still, predictability is not something the FX market is famous for so watch out!

On Japan�s economic calendar, we�ve got the June report on retail sales at 11:50 pm GMT. Since consumer activity makes up as much as 70% of a country�s economic activity, economists tend to watch the report as it gives an insight people�s spending habits. Japan�s retail sales has been consistently showing decline for nine consecutive months now and analysts predict that June�s figure will be no different. They said that sales probably fell again by 2.5% in June.

Yatta!!! That�s Japanese for I did it! The yen rallied impressively yesterday, making strong gains against the USD and EUR during the latter sessions of the day. The USDJPY closed at 94.57 while the EURJPY dropped around 300 pips after testing the 136.00 handle! The pair eventually closed at 134.02. Does this signal the end of the recent rally? Or will traders see it as a pullback and as an opportunity for further yen selling?
Retail sales have fallen by 3.0% from a year ago, as sales fell for the 10th straight month. Continuing job losses and wage cuts are forcing consumers to cutback on spending. Even though economic conditions are slightly improving, economists believe that sales will not pick up until labor conditions finally stabilize.

At 11:50 pm GMT, preliminary industrial production data will be available. The data is expected to show that industrial production rose by 2.5% from May to June. Take note that May�s figures were revised down from 5.9% to 5.7%. Could we see a worse than expected figure come release time?

The USD/JPY staged another rebound yesterday as risk aversion brought back demand for the safe-haven USD. Yen crosses were driven lower as Japan’s industrial production failed to meet expectations of a 2.5% increase.

As US durable goods orders posted a 2.5% downturn, the USD/JPY made its way above the 95.00 mark. The pair is currently tiptoeing around that area at the moment as it braces itself for more hard-hitting economic data from both the US and Japan. Another increase in US weekly jobless claims could pull the USD/JPY to new heights as risk aversion plants its feet on the market.

For Japan, the load of economic reports expected today could dictate the price action for JPY crosses. Manufacturing PMI is due at 11:15 pm GMT. An improvement over the previous reading of 48.2 would be positive news for the JPY. Household spending data, which is due at 11:30 pm GMT, is expected to be up by another 0.3%. Tokyo core CPI, which is due also at 11:30 pm GMT, is projected to post a 1.7% drop in consumer price levels. Core CPI for the entire Japanese economy is expected to mirror this decline in price levels. Lastly, labor conditions are predicted to deteriorate as unemployment rate could climb from 5.2% to 5.3%.

The JPY was beaten to a pulp by several Yakuzas as it was going down the Bento alley. The gang was not just going to let the JPY walk down the alley owned lock, stock and barrel by the rival group without a scratch. The JPY found itself bleeding at the end of yesterday.

Several economic updates were released in Japan yesterday. One of which was Japan�s manufacturing PMI. Japan�s manufacturing PMI rose to 50.4 from 48.2 but investors didn�t take much notice on it. Tentativeness came in when Japan�s household spending for June gained only by 0.2% after rising by 0.3% during the month prior. The consensus was for a 0.3% advance. Moreover, both the Tokyo core CPI and the national core CPI dropped by 1.7% after already falling by 1.3% and 1.1%, respectively. Another thorn came in the form of Japan�s unemployment rate which jumped to 5.4% from 5.2%. Unemployment was only expected to rise by 5.3%.

The not-so-good results in Japan coupled with risk appetite in the US and European markets placed a downward pressure on the JPY.

No top tier economic reports are due in Japan today. The JPY may get another beating if the US advance GDP surprises us to the upside.

Despite poor results from Japan�s housing starts report, the JPY was bought up furiously last Friday. The prime cause was better than expected advanced GDP that came out from US. This pushed traders to diversify their portfolios away from the USD and seek another �safe-haven� currency, the JPY. The USDJPY pair dropped almost 100 pips in the two hour span following the US GDP release during the US session.

Japan�s report on June average employee earnings just released indicated that employment conditions in the country still remain bleak. It printed a 7.1% decline, almost double the -3.6% consensus. It seems that Japan�s economic health continues to be in a depressing state even as other G7 nations report that things have begun to be �less bad.�

No high market impact economic data scheduled for release this week from Japan so the JPY�s price action would most likely be largely driven by degrees in risk appetite and technical analysis once again. In any case, expect to see the report on Japan�s monetary base y/y later at 11:50 pm GMT. Economists predict a 6.8% growth in the total quantity of JPY in circulation and deposits held at Japan�s central bank.

Once again, the yen got beaned on the head by a stray foul ball, posting losses versus the USD and EUR yesterday. After posting some nice gains versus the USD on Friday, the yen fell and the USDJPY pair jumped right back up, closing the day at 95.33. At the same time, the EURJPY rose and hit a new high, breaking past last week�s high and tested levels near 137.50 before eventually closing 137.39. Will traders have any mercy for the yen this week?

A report released yesterday indicated that Japan’s monetary base rose for the 11th straight month, as it increased by 6.1% in July. This reflects the BOJ’s efforts of economic stimulus to help boost the economy. Still, the economy has been plagued by unstable labor conditions. As long as this continues, it may not matter how much money is being circulated as consumers are simply holding back on spending.

Not much else coming out for the rest of the week, with only the Leading Indicators index due on Thursday. The index is expected to have improved from a reading of 76.9% in May to 78.9% in June. Despite the improvement, I dont think traders will find this enough reason to buy up the yen. It is sentiment that is driving the market right now, so be on the look out for news coming out from the US to dictate the direction of yen trading in the meantime.

The Yen started the day charged with enough energy to recover some of its previous losses. Demand for higher-yielding currencies gained the upper hand in the end as US economic reports pumped up risk appetite.

As the US posted a 3.6% uptick in pending home sales, safe-haven currencies such as the USD and the JPY were dumped along the way. Combined with modest improvements in other major economies, the upbeat reports from the US whet the appetite of risk-hungry investors.

Japan’s economic calendar is relatively light for the remainder of the week, with Thursday’s release of the leading index on the agenda. But don’t dismiss the possibility of seeing fireworks in the JPY pairs’ price movements. Economic reports from the US point towards a modest recovery and this could fuel the ongoing Yen sell-off.

The JPY was mixed in yesterday�s trading as it encountered some major support at some notable psychological round levels. The Yen was pretty much �boxed� throughout the day. Based on the short term price movements (1 hour), the JPY appears to be poised for a positive upswing.

No economic updates were held in Japan yesterday. The Yen gained a little ground during the US session when both the ADP non-farm employment change and ISM non-manufacturing PMI showed worse-than-expected results. Investors fled back to the safety of the JPY and the USD as risk tolerance in the capitals markets dwindled.

Japan�s leading index for July will be reported today at 5:00 am GMT. The index is expected to rise to 79.7 from 76.9. A movement higher in the index is known to precede a consequent development in Japan�s economy. Such could then reflect well on Japan and the JPY at least in the short term.

The JPY�s tone was generally reserved all throughout yesterday as it just moved side wards with a slight bias to sell. Traders still remain cautious in letting go of the JPY as it is considered a safe-haven currency.

Japan�s trading day yesterday was also uneventful as only the leading index was released. The report tries to predict the direction of the nation�s economy in the next six months through the use of 12 economic indicators. It hardly has an impact on the foreign exchange markets though (as evidenced yesterday) because most of the indicators used have been previously released.

For today, the country�s calendar will be barren but expect to see the country�s current account balance and core machinery orders on Sunday at 11:50 pm GMT.

The yen lost out on Friday against the USD, as investors reverted to dollar buying right after the NFP report was released. Interestingly, the yen also lost against the euro - possibly because investors started moving their assets to the USD? Could this mean that investors consider the USD to be more “safe”?

Over the weekend, core machinery orders data was released. Orders rose by 9.7% in June, marking the first increase in 4 months. A separate report showed that Japan’s trade balance surplus widened to 1.153 trillion JPY on better exports, more specifically because of Chinese demand. As long as China keeps their robust growth, this will bode well for Japan.

Later today, we have the Economic Watchers Sentiment and Preliminary Machine Tools Orders reports due at 5:00 am GMT and 6:00 pm GMT respectively. The first report is expected to show an improvement and have a reading of 43.4, up from a score of 42.4 in June. There are no forecasts for the orders report, but if the trend from the weekend continues, we may see an improvement in this report as well.

Tomorrow, the Bank of Japan will be releasing its interest rate decision. Once again, I don’t think we’ll be seeing a rate cut - really, how can they cut rates when it’s at 0.10% already? Given the pickup in orders we saw over the weekend, I think we may see the BOJ express some optimism that things will pick up, but at the same time, remain cautious over the state of the economy.

After bowing down to the safe-haven USD last week, the JPY was able to recover some of its losses as traders set their sights on a possibly upbeat monetary policy statement from the BOJ today. Accounting for much of the JPY strength were strong economic reports released over the weekend.

Economic data from yesterday came in worse than expected but this hardly stopped the JPY from amassing more gains. The Economy Watchers Sentiment index fell short of expectations as it scooted over from 42.2 to 42.4. The consensus was an increase until 43.4. Nonetheless, the current reading marks the best economic outlook in nearly two years.

The recent slew of strong economic data provides an excellent preview for the upcoming BOJ monetary policy statement. While interest rates are expected to hold steady at 0.1%, exit strategies from the government’s asset purchase programs are expected to be on the agenda. The BOJ has already expressed its concerns against leaving these policies in operation for too long and, given the improving health of the Japanese economy, they might decide to withdraw these policies sooner than later. Also due today is a gauge of household confidence, which is projected to climb from 37.6 to 39.2.

Meanwhile, economic reports from China are also on today’s docket. Economic growth in Japan’s Asian neighbor translates to increased strength for the Japanese economy. China is set to report improvements in retail sales, industrial production, and fixed asset investment. Other economic releases from China include CPI and PPI. Better than expected results would have bullish effects on the JPY.

It was a day to remember for the JPY as it rallied against ALL the other majors in yesterday�s trading. Looking at the daily charts of the JPY pairs, JPY�s month long downtrend against the other currencies (except the USD) was finally snapped in yesterday�s action. Will yesterday�s movement mark the start of the JPY�s rise? Or was it just a temporary correction?

In a press conference, Bank of Japan Governor Masaaki Shirakawa said yesterday that the threat of Japan slipping into a deflationary spiral is unlikely right now. However, the BOJ remained very cautious about its outlook despite the recent uptick in the global financial markets. The bank, as expected, kept its overnight lending rate at 0.1%. It also maintained its initial view that the economy has started to ease a little bit.

The JPY surged following the statement.

Bank of Japan�s monthly report is due today at 5:00 am GMT. Market participants will look into the report for the further data supporting the bank�s latest view on the economy.

The JPY finally found resistance versus the USD and its other crosses after two days of gains in yesterday day�s trading session. The bank said in its monthly report yesterday that economic conditions have stopped worsening and is likely to turn upward in time, spurring a bit of risk-taking.

Later at 11:50 pm GMT, expect to see the Bank of Japan�s monetary policy meeting minutes. It outlines the bank�s reasons on where to set the nation�s benchmark interest rates. In addition, the meeting minutes enables the public to understand how the bank sees the country�s economic condition. Also released at the same time is the report on tertiary industry activity June-on-May. Economists predict that tertiary industry activity decreased by 0.3%. Tertiary industry activity pertains to the value of services purchased by businesses.

And the yen continues to rally. The yen gained against the dollar yesterday, as investors jumped to the yen when poor US retail sales data was released. The USDJPY pair closed trading at 95.37. The pair has dropped ever since the strong up move last Friday � will we see a correction, or will the trend continue today?

Last night the latest Tertiary Industry Activity report was released. The report measures the progress of service related business � like power, transportation and communications - in the past month. Last June, demand for services rose by 0.1%. It seems like the BOJ�s stimulus plans are working…

Speaking of stimulus plans… the minutes of the last monetary policy meeting showed that the Bank of Japan could end their economic stimulus strategies in December only if the financial markets show some improvement. At the same time, they said that further stimulus could be implemented if no improvement is seen. Clearly, the BOJ remains very cautious about the economy.

Nothing due today from Japan, but be on the look out for economic data coming from elsewhere. Good luck trading!

Hooray for Japan! The nation was finally able to climb out of the recession as it posted positive economic growth for the second quarter. The 0.9% growth in GDP came below expectations of a 1.1% uptick but, after enduring negative growth in the previous five quarters, any sign of positive growth is welcome.

Economists are quick to caution against high hopes for a full economic recovery. They pointed out that the uptick in GDP was largely a result of an increase in government spending and is only a slight rebound from the 3.7% downturn in the first quarter. Also leading the economic expansion was the 6.3% growth in exports as Japan’s overseas markets show signs of stabilizing.

The GDP report, which was released Sunday, is expected to make a huge impact on the JPY price action today - and probably for the entire week. The only economic report due from Japan this week is its All Industries Activity index, which is expected to have a minimal impact on the JPY action. This report is set to be released on Wednesday and is projected to post a 0.4% increase in the total value of goods and services purchased by businesses.

The USD/JPY is currently testing previous support at 94.50. If the JPY sustains its bullish tone for the rest of the week, then the pair could breach support and continue to slide down.

It was a grand slam for the Japanese Yen as it won yesterday�s trading against all the other major currencies. Despite a weaker-than-expected growth in the Japanese economy, the JPY was still able to move forward. We have risk aversion to thank for that.

Japan�s economy surfaced above water after being drowned from its deepest post-WWII recession. Japan�s GDP registered a growth of 0.9% during the second quarter after falling miserably by 3.1% in the previous period. The growth was caused by the expansion in Japan�s exports and consumer spending. Despite the increase, stocks in Japan and anywhere in the globe fell as the result failed to meet its growth projections of 1.1%. Concerns that such gains may not be sustained rose. This prompted an across the board risk aversion in the capitals markets.

No reports are due today in Japan. We might see some correction in the JPY given yesterday�s heavy gains.

The JPY took a break from its recent rally and gave other majors a chance to catch up yesterday. With yesterday�s absence of economic data, the move was most probably a pullback from the recent strength of the JPY. The dominating market theme seems to be risk aversion so unless a major shift sentiment occurs, the JPY will remain to be investors� “go-to-guy”!

Pretty light economic calendar today as only Japan�s All Industry Activity report for June is due. It basically measures the month-on-month change in prices businesses pay for goods and services. The report is set for release at 2:30 am GMT. Don�t expect any major market moves upon the release as most of the data the report uses has been previously released.

The yen went on a roller coaster ride yesterday, riding a strong run of risk aversion during the early sessions, before giving up much of its gains once the US session rolled around. The main catalyst was US equities gaining in the US session.

Early yesterday, the All Industries Activities report came in. It records the overall monthly change in prices businesses pay for goods and services. The report showed that the amount that companies spent on goods and services only grew by 0.1% in the month of June and not 0.4% like initially expected.

With nothing coming up for the rest of the week, the yen would probably still remain to be driven by shifts in risk sentiment. With high-impact reports coming out from the US today, we may see another wild ride for the yen today.

Price movement in most Yen pairs was a bit unsteady yesterday, except for the GBP/JPY and USD/JPY. Against the pound and the greenback, the Yen soared up like Mr. Fredricksen in his balloon-propelled house.

Just recently, Japan made its official exit from the recession when it posted a positive GDP for the second quarter. But when BOJ’s Atsushi Mizuno remarked that a sustainable recovery in the Japanese economy is highly uncertain, the Yen made a slight retreat. Mizuno expressed his concern that the unstable demand from the US and the euro zone could affect Japanese exports, which are still struggling to stabilize. He also mentioned that, since deflationary pressures would continue to plague their economy, interest rates would be kept at their current 0.1% level for a long while.

Japan’s economic schedule is report-free for this last day of the week. As the summer season continues to dry up the volatility in the markets, expect price consolidation to be the motif for today’s trading sessions.