Daily Economic Commentary: Japan

Trading Discussion News and Economy
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All together now, men! Let’s ditch the yen! Disappointing data and a healthy risk appetite set the stage for broad yen weakness as USD/JPY joined the yen crosses and rallied up the charts, posting a 36-pip rise for the day.

From the very get go, the odds seemed in favor of yen sellers. Buyers were greeted with bad news early on as they saw a downward revision in GDP from a 0.8% to a 0.9% contraction early in the Tokyo session. Japan is officially in recession, and its economy will likely contract again in the second quarter of this year.

Sadly, we also saw a poor showing from the household confidence index, which was slated to show a reading of 34.7 but instead read 34.2.

The only silver lining was a decent increase in machine tool orders, which showed a 34.2% rise year-on-year last month, an improvement on the 32.8% increase in April.

It seems like we may just see more of the same from the yen today. No big reports are due, so yesterday’s momentum may just carry the yen further down.

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The yen’s scorecard during Friday’s trading was as mixed as a Piña Colada. Although it got pipsy against the euro and the pound, gaining 130 pips and 105 pips respectively, it wasn’t able to score a win from the dollar as USD/JPY ended the day 8 pips higher from its opening price at 80.34.

Heck! With all the bad news we heard last week, I’m not surprised that risk aversion reared its ugly head back in the markets and highlighted the yen’s safe haven reputation. However, I think the disappointing data from Japan might have held back the yen’s performance against the dollar.

It was reported last Friday that the change in the value of services bought by businesses in April only increased by 2.6%. The Tertiary Activity index was seen to print at 2.8% as Japan started rebuilding from the destruction caused by the earthquake and tsunami.

The CGPI report, which reflects the change in the price of goods sold by companies, also fell short of expectations when it came in 0.2% shy of the forecast at 2.2% for May.

Ah, and it looks like the disappointment doesn’t end there!

Earlier today we saw a minor yen sell-off after it was reported that Core Machinery Orders for April declined by 3.3%. The actual figure is pretty far off what analysts had predicted which was for a 2.0% uptick.

I wonder if tomorrow’s roster of economic reports will be able to provide the yen support. According to our forex calendar, the BOJ will make its interest rate decision at 12:00 am GMT. Although no major changes are expected in the bank’s monetary policy, it may be better to keep your ears peeled for some jawboning. Take note that USD/JPY is chillin’ near pre-March 18 intervention levels.

Along with that, we’ll also have the BSI manufacturing index for the second quarter of 2011 and it is anticipated to come in at -2.1 after printing at -3.2 for Q1 2011.

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Due to the absence of high-profile economic releases, the yen found itself unable to pick a clear direction yesterday. While it was able to gain slightly versus the dollar, it lost against the euro and the pound.

Today, the yen will probably have a bit more direction as the Bank of Japan (BOJ) is scheduled to announce its decision on interest rates within the day. The market expects interest rates to be kept near zero, but also believes that the central bank will introduce a new low interest rate lending program to help the economy grow again. This lending program, which is rumored to be worth around a couple of hundred billion yen, is aimed to help new companies with a lot of potential grow faster.

Whether the BOJ’s move will be beneficial for the yen or not is undetermined. On the one hand, the “easy money” could lead to a yen sell-off. But on the other hand, the prospect of economic growth could provide support for the yen.

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With risk appetite driving the market, the yen got sliced and diced in yesterday’s trading action. Yen crosses soared up the charts, with EUR/JPY and AUD/JPY gaining 65 and 90 pips to close at 116.26 and 85.93 respectively.

Earlier in the day, the Bank of Japan released its interest rate decision and as expected, kept rates unchanged and didn’t make any changes to its 10 trillion yen stimulus program. The central bank did, however, raise its growth forecasts, which is ironic given how Japan was put on downgrade watch last week by Moody’s. The BOJ also introduced a new 500 billion yen lending program, geared towards helping companies that do not have any collateral to help back up those loans.

However, this didn’t have much effect on the market, as it’s all about risk sentiment right now. So far this week, we’ve seen risk appetite drive higher yielding currencies higher versus the yen. It’s the middle of the week now, so watch out for a potential midweek reversal.

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Thanks to risk aversion, the yen was able to gather some strength to post some respectable gains versus other major currencies yesterday. By the end of the U.S. trading session, the yen had gained a solid 63 pips over the pound and 141 pips over the euro.

What brought about the bout of risk aversion? Greece’s debt issues again of course!
Apparently, EU finance ministers held an emergency meeting yesterday but failed to come up with a meaningful solution. They ended with a deadlock, with some members arguing that bondholders should shoulder some of the burden in bailing out Greece.

No important data coming out of Japan for today, so watch out for the economic releases from other major economies instead. Keep particular attention to U.S. data, as they will be important in determining risk sentiment!

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Why thank you, risk aversion! Safe-haven rallies forced most major currencies to bow down to the Japanese yen yesterday. Even the U.S. dollar, which also benefits from risk aversion, ended lower against the yen as USD/JPY closed below the 81.00 mark. Can the yen hold on to its recent gains?

The minutes of the BOJ’s policy meeting revealed that the central bank policymakers expect the effects of the March 11 disaster to weigh on the Japanese economy in the coming months. In particular, they mentioned that Japanese exports are likely to stay low for the time being. They also pointed out that business and private investment are also down, but are expected to pick up sooner or later.

Japan won’t be releasing any economic data today, which means that the yen could be strongly influenced by risk sentiment again. Stay on your toes, people!

522

Who says it’s not fun in the Land of the Rising Sun? Thanks to bullish comments from Japanese officials and lingering risk aversion in markets, the yen was able to gain against most of its major counterparts last Friday. USD/JPY ended up falling to the major psychological level at 80.00, while EUR/JPY ended the day on a deadlock at 114.48.

Though risk aversion eased up a bit in markets, the yen was able to continue its winning streak against its pip counterparts when the Bank of Japan’s meeting minutes revealed that the central bank expects the economy to experience a “moderate economy” by as early as the second half of the year. Boo yeah!

Does this mean that only the Japanese news will move the yen this week? I don’t think so! With the markets’ focus still on Greece, I have a feeling that the yen’s safe-haven status will also play a big part on its price action.

But that doesn’t mean that we can ignore the local news! The trade balance report released a few coffee cups ago showed that Japan’s trade deficit reached 853.7 billion JPY in May. As it turned out, the earthquake last March 11 is still limiting the economy’s recovery.

We’ll know more about the state of Japan’s economy this week when the total value of goods and services purchased by businesses is printed tomorrow at 4:30 am GMT. From a sharp 6.3% decline in March, investors are now expecting a 1.9% increase in April.

Last to come out from Japan this week is the data on the price of services purchased by corporations. The CSPI is expected to remain at April’s 0.8% slip, but a dramatically weaker number might scare off the yen bulls from last week.

Make sure you watch your charts more closely this week!

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Looks like the sun isn’t the only one rising in Japan! A surprisingly high trade deficit report inspired mixed price action from the yen traders yesterday. The yen weakened against the dollar, euro, and the pound, but it gained against the Aussie and the Kiwi.

Data released yesterday revealed that Japan’s trade deficit had widened to 853.7 billion JPY in May from its 463.7 billion JPY figure in April. Yikes! That’s the second biggest trade deficit for the Land of the Rising Sun! If you’ve read the best forex education site on the planet, you would know that weak trade numbers are not good for an export-related Japanese economy.

Let’s see if the yen bulls can put up a good fight today when Japan releases its all industries activity report at 4:30 am GMT. While many are expecting the data to rise by 1.9% in April from a 6.3% slip in March, a huge downside surprise might send the yen lower in the charts.

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Improved risk appetite pushed the Japanese yen lower against most of its counterparts yesterday. It’s only win was against its safe-haven rival, the U.S. dollar, putting USD/JPY a few pips closer to the 80.00 handle. Will today’s set of economic data trigger a breakdown?

Aside from the rebound in risk-taking yesterday, the Japanese yen was also weighed down by a weaker than expected all industries activity index. The indicator came in at 1.5% for May, lower than the projected 1.9% reading but loads better than the -6.4% figure for April. This implies that the economic recovery in Japan wasn’t as strong as analysts hoped.

Japan won’t be releasing any economic reports today, so make sure you keep tabs on risk sentiment to figure out where the yen pairs would be headed. If you’re planning to trade USD/JPY, don’t forget to check out my U.S. economic commentary because there’s a huge red flag on its schedule for today. Good luck!

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After two straight days of trading between the 80.00-80.35 range, the yen bears finally decided to show some strength! Upon the release of the FOMC statement, USD/JPY exploded out of its range and rallied to new weekly highs. It is currently trading at 80.53, a decent 40 pips higher from its week open price.

The FOMC statement, as I mentioned in my U.S. update, revealed that another round of quantitative is [B]NOT[/B] in the cards yet. It also showed that the Fed believes that inflation wasn’t subdued anymore, and growth would probably pick up in the next few quarters.

Japan’s forex calendar today presents nothing of interest, so the yen’s price action will probably be driven by U.S. data again.

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Risk sentiment was in favor of the Japanese yen yesterday as it gained ground against most of its counterparts. However, it didn’t do so well against the U.S. dollar and the Swiss franc, its safe-haven rivals. USD/JPY closed at 80.57, up 25 pips from its open price. Find out where the yen pairs are headed today!

Weak economic figures from several major economies caused investors to flee to the safe-havens yesterday and unwind their carry trades. Check out my U.S. economic commentary as well as my euro zone fundamentals write-up to see which reports spurred risk aversion.

Just a few hours ago, Japan reported that corporate services profits were down by 0.9% year-over-year in May. This was a couple of notches worse than the projected 0.7% decline as the effects of the March 11 earthquake and tsunami continued to weigh down the Japanese economy.

Japan won’t be releasing any data today, which means that the Japanese yen could continue to be driven by risk sentiment. Stay on your toes, people!

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King Kong ain’t got nothin’ on the yen! Even with no economic data to support its rise, the yen reigned supreme. Except against the Swissy, it gained against all of its major counterparts, riding waves of risk aversion all the way to the top of the charts!

No doubt, risk aversion came to the rescue for the yen last week, but this week, it may come under attack as Japan rolls out a few notable reports. Remember, Japan’s economy hasn’t exactly been impressive as of late, so these reports might just shift focus back on Japan’s shaky fundamentals and weaken the yen.

The first report of the week, May retail sales, will come out at 11:50 pm GMT. Forecasts have it showing a 2.3% decline after April’s dismal 4.8% drop. If it comes in below expectations, it could just spark a mini yen selloff.

After that, we’ll be treated to preliminary industrial production data at 11:50 pm GMT on Tuesday. Traders are feeling less pessimistic about this report as it’s anticipated to show a 5.6% rise in output, a solid improvement from the previous month’s 1.6% growth.

Then on Thursday at 11:30 pm GMT, we’ll get a taste household spending and CPI data. The decline in household spending is expected to slow from 3.0% to 1.7%, while the national core CPI is expected to tick down from 0.6% to 0.5%.

Soon after that, at 11:50 pm GMT, the Tankan surveys will be available. Look for the manufacturing index to reverse its reading from 6 to -7 for Q2 2010. Likewise, the non-manufacturing index is expected to read well into the red as forecasts have it dipping from 3 to -3.

Now kids, keep in mind that these reports will probably just take a backseat to general market sentiment. After all, Japanese reports aren’t exactly best for trading the news. With that in mind, it might be best for you to keep an eye on risk sentiment. Remember, risk aversion is the yen’s friend! Good luck!

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Looks like a positive economic report didn’t cut it for the yen bulls! The yen weakened against most of its major counterparts yesterday when a round of risk appetite in markets sapped demand for the low-yielding yen. USD/JPY rose by 57 pips to 80.90, while EUR/JPY also went up by 132 pips. Heck, even GBP/JPY inched 106 pips higher at 129.28!

If you’re one of them fundamentals traders, you would’ve bought the yen yesterday when Japan’s retail sales report only clocked in a 1.3% decline in May after falling by 4.8% in April.

Too bad the markets just weren’t ready to give up their focus on Greece! You see, more and more traders are feeling the love for the euro and other high-yielding assets as the Greek Parliament comes close to a decision on a new set of austerity measures that might save the Greek (and the global) economy in the short run.

Today we’ll only have the preliminary industrial production figures to chew on from Japan. The data will be released at 11:50 pm GMT, and analysts expect that the output produced by the manufacturing, mining, and utilities industry will rise by 5.6% in May from its 1.6% figure in April. Watch this one closely, kids!

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Risk appetite dealt the yen a massive blow, and boy did it fall hard! Even with Japan’s retail sales report coming in better than expected, the yen found no love as it lost to all its major counterparts. How much further can we expect it to fall?

Japan’s retail sales in May showed a 1.3% decline. Yeah, that number isn’t exactly bullish, but if you consider the fact that April posted a 4.8% drop and forecasts were for a 2.4% decrease, you’d see that it ain’t so bad after all!

Earlier this morning, we had a taste of preliminary industrial production data. So far, it hasn’t done much to boost the yen, even if it exceed expectations (5.7% vs 5.6%).

The next report, manufacturing PMI, won’t come out until 11:15 pm GMT. The last time this report came out, it printed a reading of 51.3. Though it’s unlikely that this will shake up the markets, it might be worth catching, especially if results deviate far from the previous month’s data.

Also, be sure to keep risk sentiment in check! We could see a big swing in risk appetite and another yen selloff if the Greek Parliament approves its austerity package today.

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Thanks to improved risk appetite, the yen was dumped like a freckly, four-eyed 16-year old boy a day before his first dance (sorry Forex Gump). The yen lost against all its major counterparts, as traders decided that it was worth getting their hands on higher yielding assets.

As it turns out, Greece did pass the proposed austerity package, and this helped ease a lot of tension in the markets. Traders reverted back to their risk taking, gun slinging ways, and once again used the yen to fund their positions. As long as risk appetite is up, we should see the yen continue to slide down the charts.

Later today at 11:30 pm GMT, we’ve got a slew of Japanese reports coming out in the form of core CPI data and the Tankan surveys. Inflation is expected to remain flat at 0.2% (seriously, does anyone think this is gonna rise anytime soon?) while the Tankan nonmanufacturing and manufacturing indices are projected to come in at -7 and -3 respectively. No surprises here, as the Japanese economy is expected to struggle for the rest of year as they recover from the effects of the earthquake in March.

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The Japanese yen failed to show its inner samurai strength on the charts yesterday as risk appetite kept it from rallying against most of its higher-yielding counterparts. Boo! It was only able to stab pips out of the dollar and the pound.

As I mentioned in my euro zone commentary, the approval of the implementation of austerity measures by the Greek parliament sparked risk appetite and had traders chasing after higher-yielding assets.

So make sure you gauge market sentiment in today’s trading, ayt? Who knows, an unexpected event may just trigger risk aversion and awaken the yen’s inner samurai. However, I wouldn’t be so sure if the yen would be able to slice pips out of its counterparts with much force given the disappointing reports we saw from Japan earlier today.

First on the list was the household spending figures for May which showed that consumer expenditures fell by 1.9% during the month and exceeded the 1.7% decline that the market braced for.

On top of that, the Tankan reports for the third quarter of 2011, fell more than what analysts had predicted. According to the date, manufacturing activity slumped during the quarter with the index down at -9.0 after coming in at 6.0 the quarter prior. The forecast was a more modest decline of 7.0.

Meanwhile, the Tankan non-manufacturing index printed at -5.0 when it was expected to merely erased the 3.0 that it printed in the previous report.

The CPI report for Tokyo in June also fell short of expectations, printing a measly 0.1% uptick for the month with the forecast up at 0.2%. On the contrary, the national CPI report came in 0.1% higher than the forecast at 0.6%.

The only other report that managed to top forecasts was the unemployment rate for May which came in 0.3% lower at 4.5%.

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Churn em and burn em baby! The yen crosses continued their hot streaks, as EUR/JPY, GBP/JPY, AUD/JPY and CAD/JPY all rose last Friday. Could we see more of the same this week?

If you have any doubts as to whether risk appetite is up, just take a look at EUR/JPY! If you’ve been attending class in the School of Pipsology, you’d know that EUR/JPY can be used as a barometer of risk. Considering how the pair closed 320 pips last week, I think it’s safe to say that risk is ON!

No biggies coming out from Japan this week, so we can probably expect risk sentiment to be the major driver of yen pairs. Watch out for those interest rate decisions from the Europe, as they could prove to be major catalysts this week.

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Like a ninja, the Japanese yen subtly snuck pips out of the pockets of its counterparts in yesterday’s trading. It was able to bag 7 pips from the dollar when USD/JPY ended the day at 80.80. Meanwhile, EUR/JPY parked 9 pips lower from its opening price at 117.43.

The lack of high-caliber reports and the absence of U.S. traders as they celebrated Independence Day might have limited the yen’s moves on the charts. Hmm, I wonder if today would be different given that we had an economic report from Japan released earlier.

The average cash earnings report for May showed that the value of income by employees increased by 1.1% during the month and beat the consensus which was for a 0.4% decline.

Make sure you get a good feel of market sentiment ayt? Keep in mind that the currency usually rallies in times of risk aversion.

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Trouble is brewing in the Land of the Rising Sun and traders are taking notice! Political squabbles in Japan dampened demand for the yen, causing USD/JPY to rise by 25 pips to 81.25 while CHF/JPY rocketed by 120 pips to 96.43. What gives?

It seems that Japanese Prime Minister Naoto Kan just can’t get enough good vibes from his country. A few weeks ago when calls for Kan’s resignation became popular, he promised to step down as soon as a second disaster aid package is approved, a sale of deficit-covering bonds is authorized, and a renewable energy bill is enacted before the end of August.

Well, yesterday the Japanese government has just approved a bill that would add 24.7 billlion USD to the disaster relief operations. Too bad that word around the hood is that Kan might want to wait for a THIRD disaster package as he had to scale down the second one to pacify his critics. Does that mean he’ll be around for an extended time?

While waiting for more news on Kan’s resignation, you might want to watch out for economic reports out from Japan today. First up is the leading indicators report at 5:00 am GMT, followed by the core machinery orders at 11:50 pm GMT. Both reports are expected to print a bit better than their previous figures, but keep an eye out for any surprises, aight?

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It’s on like Donkey Kong!!! With risk aversion still weighing on the markets, the yen soared higher against the European currencies. EUR/JPY fell 108 pips to close at 115.81, while GBP/JPY dropped 73 pips to end the day at 129.47.

Earlier today, core machinery orders data came in to show a 3.0% increase, which was pretty much in line with expectations. This was taken as good news, as it was a complete reversal from the previous month’s decline of 3.3% and indicates that companies are starting to get back on their feet after the March earthquake shook the entire economy.

However, the name of the game right now is risk sentiment and so far this week, it seems that markets are back in risk aversion mode. As long as this continues, the yen should benefit as traders unwind their positions in riskier assets. Just keep in mind that sentiment can always change on a dime, so be careful out there!