Daily Economic Commentary: Japan

Trading Discussion News and Economy
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Despite the absence of economic reports, the yen was still able to tackle the dollar into the bear lair yesterday. USD/JPY tumbled to its closing price of 83.31 after it tapped its intraday high at 83.75.

Earlier today, the minutes of the most recent monetary policy committee meeting was released and showed growing confidence among the BOJ hood in the economy’s recovery.

And so, with our economic calendar blank for reports from Japan, you may to make sure that you ain’t snoozing when the U.S. releases its reports later! I have a feeling that if we see further dollar weakness, USD/JPY may just come crashing down the charts!

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The yen was one of the currencies pushed around by the risk appetite train last Friday when better-than-expected reports popped up in markets and made high-yielding currencies the apple (the fruit – not the company) of markets’ eyes. USD/JPY might have fallen 42 pips to 83.11, but EUR/JPY also climbed by 37 pips to 113.73. Meanwhile, GBP/JPY also peaked at an intraday high of 135.52 before capping the day 21 pips ahead of its open price at 134.91.

China might have made it easier for the yen bears to attack when it raised its reserve requirement ratio by another 50 basis points to 19.50% just before the G20 meeting last weekend. The additional tightening by China showed how serious the government is on taming economic growth. This is bad news to Japan since China’s demand takes up a big chunk of Japan’s exports.

Let’s see if Japan’s economic reports convince the currency bulls to go back to the yen this week. The fireworks will start today at 4:30 am GMT when the all industries activity is reported. The data will show the value of goods and services purchased by businesses, so a figure higher than last November’s 0.1% decline could give the yen a lift.

Also due this week are the trade balance report tomorrow at 11:50 pm GMT and a couple of CPI reports on Thursday at 11:30 pm GMT.

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Like most of the majors, the yen’s moves on the charts yesterday were as tight as Katy Perry’s jeans. It was only able to snatch 15 pips from the euro when EUR/JPY closed at 113.68 despite risk aversion backing it up. Meanwhile, USD/JPY was almost unchanged at 83.12.

I have a feeling that the All Industries Activity index for December might have weighed down on the yen. It was reported yesterday that production by all sectors in the Japanese economy declined by 0.2% during the month, and disappointed the 0.1% growth that analysts had eyed.

Aha! It looks like yesterday’s disappointing report was nothing compared to what hit the airwaves earlier today!

During the Asian session, yen pairs spiked when news broke out that Moody’s changed Japan’s economic outlook from stable to negative, cutting its credit rating down to Aa2. Duhn, duhn, duhn, duhn!

Make sure you get a feel of market sentiment when you bet your pips! If risk aversion continues to dominate in today’s trading, the yen may just be able to hold on to its gains against its higher-yielding counterparts!

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Action on the yen pairs during yesterday’s trading was as intense as Kevin Garnett’s game face. USD/JPY and EUR/JPY spiked during the Tokyo session only to tumble to support levels.

Both then traded higher during the New York session but the dollar and the euro were no match for the yen’s rikishi strength. At the end of the day, USD/JPY was 36 pips lower at 82.76 while EUR/JPY was down 68 pips at 113.00.

So what fueled the yen’s moves?

First, there was the credit rating downgrade that Moody’s issued to Japan. It shouldn’t have been much of a surprise since Standard and Poor has also revised Japan’s grade last month. However, it might caught the market off guard because the announcement followed only after a day when the BOJ upgraded its economic forecasts for the country.

To the defense of the central bank though, its optimistic predictions were based on economic reports while Moody’s move was based on political instability.

Hotshots at the credit rating agency are worried if politicians from both the ruling party and the opposition can set their issues aside and focus on reeling in Japan’s mounting debt.

The bad news only fueled risk aversion further and helped the yen sustain its rally. Then it might have been the positive reports from its counterparts that limited the yen’s gains during the latter part of the day.

I don’t know if there’s enough risk aversion left in the markets for the yen to hold on to its gains for today though, given the worse-than-expected trade balance report we saw earlier.

It was reported that exports outpaced imports by only a puny 190 million JPY and fell short of the 700 million JPY surplus that the market was anticipating. Meanwhile, the CSPI report for January beat the expected 1.3% decline in prices of services bought by corporations when it only showed a softer contraction of 1.1%.

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No economic report was released from Japan yesterday, so the yen’s price action was as mixed as a shabu-shabu pot. Though the yen gained 26 pips on the dollar at 82.50, it also lost 41 pips to the euro at 113.41 and 21 pips to the pound at 133.70.

Risk aversion was still the name of the game as tensions in the Middle East continue to push commodity prices higher. As a low-yielding currency, the yen usually stands to benefit from risk aversion.

Japan will have its chance at the pip stage today when it releases its CPI reports at 11:30 pm GMT. Market junkies expect Tokyo’s CPI to slip by 0.3% in February, while Japan’s CPI data is also projected to decline by 0.3%.

Good luck on your trades today, fellas!

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Thanks to another run of risk aversion and general dollar weakness, the yen found itself sky high on the charts once again. USD/JPY dropped 72 pips, ending the day at 81.88. Meanwhile, EUR/JPY after hitting a low of 112.20, EUR/JPY closed at 112.99, still good for a 42 pip drop on the day.

The yen stands to benefit from growing tensions in the MENA region, as it normally does in times of risk aversion. Of course, this does hurt exports, as a more expensive yen makes Japanese goods more expensive. I wonder though, if the yen continues to rise, will the BOJ intervene in the markets yet again?

Earlier today, core CPI data was released. Unfortunately, the data showed that on year-on-year basis, consumer prices in Tokyo fell by 0.4%, slightly off the forecast of a 0.3% decline. This indicates that deflation is still a major problem for Japan.

You might be thinking, “Well, doesn’t this mean that demand is low. Why doesn’t the government inject more stimulus?”

Ahhh, if only it was that easy. The government has already recently added more stimulus to the economy through the offering of more short term bonds. Still, given how Kan is having problems passing his projected budget plan and how ratings agencies have the stink eye for Japan’s debt, its hard to see how they the government could spend more and add even more debt.

Looking at today’s economic calendar, nothing appears to be coming out. This doesn’t mean you should just chill out though. Make sure you read up and see what’s coming out from other countries, as you never know what might rock the market!

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“Up, up, here we go,” sang the Japanese yen last Friday as it rocketed against most of its major counterparts. USD/JPY closed out at 81.66 while EUR/JPY fell 70 pips from its open price of 113.00. Can the yen continue to fly this week?

Even though economic data from Japan hinted at non-stop deflation in their country, the Japanese yen managed to gain ground against the U.S. dollar and the European countries. Against the commodity currencies, it wasn’t so lucky.

Over the weekend, Japan released a bunch of economic figures namely its industrial production, retail sales, and manufacturing PMI. The manufacturing index printed an improvement from 51.4 to 52.9 while retail sales posted a 0.1% uptick for January. Both these reports were better than expected, unlike the industrial production report which fell short of expectations. The preliminary industrial production data for January showed a 2.4% increase, which was much less than the projected 4.1% rise.

Moving on… Japan has its housing starts, household spending, and unemployment rate set for release today. At 5:00 am GMT, the housing starts report is expected to show a 5.6% annual increase for the month of January. A stronger than expected report could be bullish for the yen because more building construction tends to lead to increased hiring and services in the construction industry. Later on, at 11:30 pm GMT, Japan is expected to post a 1.3% dip in household spending for January and also show that its jobless rate held steady at 4.9%. Better stay tuned for these reports because upbeat figures could further fuel the yen’s rally.

On Tuesday, Japan will release its average cash earnings report, which is an indicator of labor wages in the country. It is expected to print a 0.3% yearly uptick, which would mean that the increase in income could lead to an increase in spending.

By Wednesday, the capital spending figure will be reported. Japanese businesses are expected to have spent an additional 5.9% on new capital expenditures for the last quarter of 2010.

No other reports are due for the rest of the week, which means that the yen could be largely affected by the market’s mood swings. Stay on your toes, everyone!

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Sayonara, green candles! The yen’s rally came to abrupt halt yesterday on improvement of risk appetite in markets. Also, mixed reports from the Land of the Rising Sun seem to have energized the yen bears, motivating them to push USD/JPY 9 pips higher at 81.81. EUR/JPY also gained 46 pips at 112.89 after hitting an intraday high of 113.35.

Yesterday’s Japanese data revealed that household spending slipped by 1.0% from last year’s January figure, which is a bit better than the 3.3% annualized decline in December. Meanwhile, new residential buildings that have started construction in January inched 2.7% higher, weaker than December’s annualized growth of 7.5%.

Last to hit the pip stages was Japan’s unemployment data. Though the headline figure stagnated at 4.9%, the report also mentioned an increase in payrolls.

Maybe the average cash earnings report at 1:30 am GMT will give us more information. The data logged a 0.1% growth in December, but a higher figure for January could support the jobless report.

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No wins here! The yen walked away with a draw and a big loss as it took on its two biggest rivals yesterday. A pretty uneventful day had USD/JPY practically unchanged at 81.89 while EUR/JPY jumped 74 pips to 113.55.

The only piece of data to come out from Japan yesterday was an insignificant monetary base report. Figures for the month of February showed that the amount of money in circulation rose 5.6%, slightly lower than forecasts for a 6.4% increase.

But just a few hours ago, Japan released a report with a little more weight to it. The capital spending report for Q4 2010 revealed a weaker-than-expected annualized growth of 3.8%, down from 5.0% in the previous quarter. I would take this as a red flag. If businesses are hesitant about making investments, it makes achieving corporate growth and economic expansion much more difficult for Japan.

The newswires will be silent for the rest of the day. In the meantime, check out the ECB press con and U.S. ISM non-manufacturing PMI if you’re looking to trade EUR/JPY or USD/JPY. Good luck yen playaz!

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Noooo!!! The yen finally gave up its struggle against its counterparts and fell heavily across the charts yesterday on a round of risk appetite in markets. USD/JPY soared by 48 pips to 82.37, while EUR/JPY rocketed by a whopping 143 pips to 114.98 after dropping to an intraday low of 113.10.

No reports were released from the Land of the Rising Sun yesterday, but the yen took a hit when the euro zone’s ECB spouted hawkish comments on their economy. Crude oil futures also edged down a bit on possibility of settlement of conflict in Libya, but the risk-lovin’ vibes only sent the low-yielding yen further down the charts.

The boards are still empty in Japan today, but keep close tabs on USD/JPY as the NFP report from the U.S. will be released today. The data usually inspires crazy volatility, so don’t let any surprises catch you!

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Ack! Despite the lack of economic reports from Japan, the yen pairs showed more spikes than Pip Surfer’s hair! USD/JPY extended to an intraday high of 83.07 before ending the week at 82.32, while EUR/JPY reached a high of 115.98 before closing 14 pips higher than its 114.98 open price.

What happened?! The yen bulls should be having parties in the pip streets with all the risk aversion going on in markets!

As it turned out, traders aren’t feeling the love for the recent political tug-o-war in Japan. Japan’s Prime Minister Kan recently managed to push his 92.4 trillion JPY budget through the lower house of the Parliament, but word on the market grapevines is that Kan’s political frenemies are firing up all sorts of ammunition to prevent Kan from passing the bill.

Let’s see if Japan’s economic data could inspire the yen bulls to hustle some muscle today when the leading index report is released at 5:00 am GMT. Markets see a 0.9-point rise for the leading index in January, expecting a 102.3% figure from December’s 101.4% number.

Japan’s current account report is also due today at 11:50 pm GMT. The current account surplus widened to 1.195 trillion JPY in December, but a higher number for January could signal healthier export demand for the export-dependent Japanese economy.

Good luck on your trades this week, homies!

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Say sayonara, yen bears! It’s the bulls’ turn to run! After swinging low last Friday, the yen was able to record modest gains against its major counterparts to start the week. USD/JPY inched 8 pips lower to 82.26 just as EUR/JPY ticked 20 pips down to 114.94.

A bit of positive data helped the yen to get back on its feet yesterday as both the leading index and the coincident index ticked up in January. Even though the leading index fell below forecast, it came hand in hand with the news that Japan’s Cabinet Office upgraded its assessment of the economy based on the coincident index for the first time since 2009.

But in spite of this show of optimism, R&I, a local rating agency/ party-pooper, sounded the alarms and warned that Japan could face a rating downgrade if it doesn’t make progress towards fixing its finances. They say Japan’s debt rating may dip even before the April elections!

Unfortunately, the country’s disappointing recent current account figures don’t help restore confidence in Japan. Its surplus narrowed from 1.52 trillion JPY to 1.09 trillion JPY in January, undershooting expectations.

With such a blurry outlook for Japan, it’ll be interesting to hear what BOJ Governor Masaaki Shirakawa has to say when he speaks up at 4:00 pm GMT. If he continues to show openness towards further stimulus, it would imply that he believes the economy is still weak, and this could be bad for the yen and its bulls.

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And the “Loser of the Forex Market for the Day” Award for the goes to… the yen! The yen turned out to be the biggest loser in yesterday’s trading session as it ended the day lower against the dollar, the pound, and the euro.

Economic data released in Japan showed that the country’s current account surplus declined to 1.09 trillion JPY in February from 15.2 trillion JPY the month prior. According to the raw data, the smaller surplus was the result of the imbalance between the rise in exports and imports. Exports were reported to have increased by a mere 2.9% rise while imports grew by a whopping 15.6%.

Let’s see if Japan’s final GDP report later will be able to help the yen recuperate its losses. The final GDP report, which will print at 11:50 pm GMT, is expected to confirm that the country did contract by 0.3% in the final quarter of 2010. If the final results come in with an upside surprise (i.e. a positive reading), then we could see the yen stage a nice little bull run.

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Ho humm… The yen just ranged against its major counterparts yesterday despite the stronger machine orders report from Japan. USD/JPY was still stuck below the 83.00 handle while EUR/JPY closed at 114.99.

Japanese machine orders reportedly grew by 4.2% in January, which was much better than expected. It was also stronger than the 1.7% increase seen in December. Later on, the final GDP reading for the last quarter of 2010 was left at -0.3% as expected.

Japan isn’t set to release any top tier reports in the next couple of days, but that doesn’t mean the yen will be stuck in its range. Make sure you pay attention to the Chinese data set for release starting 2:00 am GMT tomorrow as Japan and China are trading buddies! Softer numbers from China could imply lower demand for Japan’s products, which could be even more negative for Japanese economic activity. Bear in mind that Japan’s trade balance just suffered its first deficit in two years this January, and more negative readings for the succeeding months could make the yen’s knees buckle!

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The scene just keeps getting worse in Japan, but the yen doesn’t seem to mind too much! It was able to make massive gains against all of its counterparts, save for the dollar and Swissy. Just as Big Pippin had suspected, USD/JPY continued rising, while EUR/JPY fell 63 pips and closed at 114.36.

It’s official, Japan’s GDP declined 0.3% in Q4 2010! The final version of the GDP report was released early in the Tokyo session, and it revealed no revisions to the quarterly pace of GDP… but the annualized figure is a different story! On an annualized basis, GDP figures were downgraded from a decline of 1.1% to a decline of 1.3%, further highlighting the fact the Japan’s recovery has been extremely shaky.

Lucky for the yen, risk aversion decided to kick in yesterday. Turmoil in the Middle east, European debt problems, and a surprising trade deficit from China combined to turn risk sentiment sour and gave the yen a boost.

Y’all will get an early break from Japanese reports today, but do keep an eye on risk sentiment if you plan on trading the yen. Good luck out there, kids!

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The 8.9-magnitude earthquake that shook the heart of Japan created equally strong waves on the charts. Hopefully, the people of Japan will rise from this tragedy in the same manner that the yen did last Friday. The yen stood strong and surged on expectations of repatriation flows, pushing USD/JPY over 100 pips down to 81.90.

The yen gaining after a tragedy? What could have caused such a reaction? Risk aversion? Not really. A positive outlook on the economy? Definitely not! Repatriation flows? Bingo!

Repatriation, the act of bringing capital back to the country of origin, was responsible for the yen’s rise. Japan is highly expected to bring home a substantial amount of its money to deal with the tragedy. As a matter of fact, U.S. Treasuries have already fallen as a result of Japan dropping its U.S. bond holdings. Aside from that, large donations from all over the world are also expected to be made, which should further stoke demand for the yen.

An event this large will probably be the prevailing theme for the week and it’ll be interesting to see how the BOJ will respond to all of this in its monetary policy statementtoday. Given the tremendous repercussions such a disaster may have on the economy, I wouldn’t be surprised to hear more dovish words from the central bank. After all, they were already dovish before the earthquake and tsunami struck.

If they were dovish then, what more now that Japan will need a huge spending package to pursue rescue and rebuilding efforts? Already, policy makers are drafting a spending bill to address the situation. But while that’s in the works, the government will be using the 200 billion JPY that remains from its budget for the fiscal year ending March 31.

Of course, this doesn’t help Japan cut down its enormous public debt, which is actually already the largest in the world. Certainly, it will need more aggressive moves to support the economy now, and we may see it in the form of more bond purchases from the BOJ.

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Action on USD/JPY during yesterday’s trading was as intense as my P90x workout! The yen was off to a weak start during the Asian session as the pair surged to its intraday high at 82.45 from 80.57. Then slowly but surely, it stepped up its game and ended the day with a 3-pip win at 81.63. Whew!

The BOJ’s decision to increase monetary stimulus weighed heavily on the yen early on in the day. I think Forex Gump also mentioned in his blog yesterday that the bank will provide the economy with around 12 trillion yen to make more cash available to the people. On top of that, rumors of a possible BOJ intervention also might have given the yen cramps and limited its swag.

But once again, repatriation flows from overseas became the yen’s piptorade throughout the rest of the day’s trading. Note that this was also the reason why the yen rose on Friday right after news of the calamity broke out.

We don’t have anything scheduled to be released from Japan today. And so, you may want to keep yourself updated on what’s going on in the country especially with talks of a possible nuclear breakdown. Some economic gurus are saying that overseas cash flows may not be enough to support the yen on the charts if Japan’s problems continue to stack up and get investors upset. Yikes!

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the yen will recover in due time

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What do you get when you mix risk aversion and repatriation flows? C’mon guys, you should know the answer to this… A strong yen! With the situation in Japan getting more and more complicated day by day, the yen has been marching as tall as ever. Yesterday, USD/JPY posted another big drop, falling 91 pips to 80.72.

Investors have been getting extremely jittery lately, and it showed in the way the Nikkei dropped over 10% on Monday. Then again, with threats of a radiation fallout, who wouldn’t be worried??

Aside from benefiting from risk aversion, the yen has been beefing up on repatriation flows as Japan has been bringing home yen to deal with the situation back home.

Of course the BOJ, being the worrywart that it is, is concerned about the yen’s appreciation. This is one of the reasons why it has decided to inject the markets with trillions of yen, hoping that this will help stabilize the markets. Rumors have it that we may even see a direct market intervention from the central bank!

Phew! The BOJ certainly has a handful of problems on its hands. Maybe we’ll get a peek inside its head later at 5:00 am GMT, when it publishes its monthly report. This report usually just presents data the BOJ evaluated to make its most recent interest rate decision, but it’ll be interesting to see if any last-minute revisions were made to it in light of recent events.

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Boy do I feel bad for anyone who shorted the yen. That baby has been ridonculously strong! New explosions in Japan’s nuclear facilities saw USD/JPY close at 79.59 with a 113-pip slide yesterday, but earlier today, it hit a [B]NEW ALL-TIME LOW[/B] at 76.42. You’re watching history in the making, kids!

The yen has been on the receiving end of the pip-rain as nuclear meltdown fears escalate. Aside from risk aversion, such a strong and sharp move as the one we saw earlier today may be explained by stops getting hit.

With the yen hitting record highs against its major counterparts, it’s no wonder talks of intervention have resurfaced. In the past, the BOJ’s attempts to intervene have been ineffective… Heck, I wouldn’t blame you if you described it as throwing money away!

So this time around they may seek help from other countries. Historically speaking, coordinated intervention efforts have been far more effective, and given the gravity of the situation and the instability of the markets, Japan may just get the support it needs to curb the yen’s appreciation.

On a side note, the BOJ monthly report revealed that the economy is actually on track to return to a moderate pace of recovery. According to the BOJ, investment and private consumption have been on the rise, but production will probably drop in the coming months in light of the earthquake and tsunami.

Also, the tertiary industry activity report released just a few hours ago showed a 2.1% rise, much better than the forecasted 1.5% increase.

Now, obviously, with the disaster as the main market theme, economic reports from Japan have had little effect on the charts lately. So in the meantime, keep an eye on developments in Japan. Any activity from the BOJ could spur sharp rallies that may be good enough for quick trades, so stay alert!