Daily Economic Commentary: Japan

The JPY once again lost its luster against the other majors in last Friday�s trading as investors became optimistic on the capitals market. The US markets, together with the other higher yielding currencies, were lifted with the unexpected jump in US existing homes sales.

No economic events were held in Japan last Friday. The main catalyst for the JPY, however, was the US existing home sales. The account surprisingly rose to 5.24 million from 4.89 million. It was only seen to reach 5.03 million. The unexpected jump in the figure sparked a broad base buying of higher yielding assets. The JPY got left out in the process.

Tomorrow (August 25), Japan�s trade balance will be released. The number is projected to narrow to �0.29 trillion from �0.44 trillion.

Also, its Tokyo core CPI and unemployment rate will be published on August 27. Both accounts are seen to worsen (CPI to -1.8% from -1.7% and unemployment rate to 5.5% from 5.4%).

It is not looking good for the JPY this week given the projections above.

Range bound was the theme for the JPY yesterday as the currency lost ground early during Asia but managed to fight back as the European trading session went underway. It seems the light economic calendar for the day kept volatility in the foreign exchange market low.

The highlight for today is Japan�s July trade balance coming out at 11:50 pm GMT tonight. The trade balance measures the total difference in value between goods and services. It is expected to show a 290 billion yen surplus, lower than June�s 440 billion yen trade balance surplus. It seems that global demand for Japan�s exports is starting to pick up as its trade balance finally showed a surplus for the first time in nine months last June. As the fourth largest exporter in the world, Japan�s trade balance gives a good indication of the country�s economic health.

Yen pairs stayed within range yesterday, although the yen finished the trading higher once again. The USDJPY and EURJPY pairs ended the day at 94.13 and 134.68.

Late yesterday, Japan’s Trade Balance report was released. The report indicated the Japanese exports fell for the 10th consecutive month, as it has fallen by 36.5% from a year ago. This brought the surplus for the past month to 190 billion JPY, less than the expected 340 billion JPY forecast. With no data being released today, can this set the tone for yen weakness today?

Tomorrow we have a couple of medium impact reports, as Tokyo and nationwide CPI data will be available at 11:30 pm GMT, along with household spending and unemployment data.

The USDJPY budged a few pips here and there but ended the day unchanged as both the USD and JPY pumped some iron yesterday. Downside risks are present for the JPY with Japanese exports suffering as trade in China shows signs of weakness.

Japan’s shipments to China fell by 26.5%, which means that their trade dependence on China might not be able to spur further growth in the third quarter. Also, Japan’s exports to the US slid by 39.5%, casting doubts on the sustainability of Japan’s positive economic growth.

For today, a load of economic reports should result to a little more excitement in JPY price action. Manufacturing PMI, household spending, Tokyo core CPI, national core CPI, and unemployment rate are all due today. Woah! Manufacturing PMI stood at 50.4 in July and any sign of improvement could boost the JPY. But household spending, which will be reported at 11:30 pm GMT, is expected to be down by 0.5%. This could be a downer for the JPY. Tokyo core CPI also poses downside risks as a 1.8% decline in price levels is expected. Price levels at the national level are projected to post a 2.1% slump. Lastly, unemployment rate could climb from 5.4% to 5.5%. We could see the USD stage another win over the JPY today as the USDJPY teeters around the 94.00 area.

The Yen ended yesterday�s session mixed. It fell against the likes of the EUR, AUD, NZD but managed to edge the GBP and the USD.

Nothing major, economics-wise, happened in Japan yesterday. The JPY ended the session pretty much on neutral grounds overall given the mixed economic results from the other nations.

Earlier today, Japan�s household spending, national and Tokyo CPI, and unemployment rate all showed dismal results. Household spending in July fell by 2.0% after rising by 0.2% in June. It was only expected to contract by 0.5%. Deflation is also plaguing Japan as its national core CPI worsened to -2.2% from -1.7%. Its Tokyo CPI also fell further to -1.9% from -1.7%. On top of that, Japan�s unemployment rate rose to 5.7%, against expectations for a 5.5% reading, from 5.4%.

Japan�s economy is not yet totally out of the woods despite being able to lift its national output back in the positive territory. Deflation problems would continue put a drag on the economy�s recovery.

The JPY�s movement last Friday versus most major currencies was pretty much range bound as little economic data kept volatility to a minimum. Still, it was the third straight weekly gain for the JPY against the USD and GBP. It seems that the overall trend remains to be buy-the-yen.

Economic data that came out of Japan yesterday gave surprising upside results. The preliminary report on industry production showed a 1.9% growth, higher than the 1.4% expected. Meanwhile, the July retail sales slumped only by 2.5%, lower than June�s -2.9%. It was also better than the -3.3% forecast. Finally, employee earnings decreased only 4.8% in July. The estimate was a 6.3% loss.

Looking ahead, Japan�s economic calendar is pretty light. No hard hitting economic reports due so the JPY�s value would most probably be driven by data coming out of other countries. In addition, risk tolerance would remain an important factor in determining the JPY�s price action versus other major currencies.

Interesting day for the yen pairs yesterday, as it was boosted by local politics and run to risk aversion early in the Asian session. It eventually gave back a lot of its gains during the latter parts of the Euro session, but still ended up for the trading day. The yen touched a 7-week high, with the USDJPY pair closing at 93.06.

The yen rallied on increased optimism, as the Democratic party scored a landslide win in the latest Japanese elections, having won 308 out of 480 seats in Parliament. The ruling parting � the Liberal Democratic Party � has been criticized for being too outwardly dependent. They have been afraid of a strong yen appreciation as they believe it would hurt Japanese exports. The Democratic Party on the other hand, won on the promise of internal change. Party leaders said that they would spend more to help stimulate the economy. It appears that people are eager for change � this is probably why we saw a yen rally during the Asian session.

The yen rally was also spurred by a drop in Chinese stocks. The Shanghai Index closed 6.7% lower to start the week. Interestingly, this brought the monthly close to negative territory. Could there be legs to the idea that we should be wary of a W-shaped recovery?

Bank of Japan Governor Masaaki Shirakawadelivered a speech yesterday, saying that the Japanese economy was showing signs of improvement. His tone was slightly better than the latest BOJ report, which indicated that the economy was levelling out.

Not much high impact reports coming up this week. Watch out for news coming out of the G20 meetings starting on Friday. What will financial leaders say about Japan�s new ruling party?

Risk aversion dominated for the first day of September with both USD and JPY flexing their safe-haven muscles. Yen crosses fell yesterday as investors dumped higher-yielding currencies on concerns about the state of the Chinese economy.

More and more signs of stabilization are seen in the Japanese economy. Automobile sales rose for the first time in 13 months as the government incentive program to boost demand for motor vehicles is finally starting to bear fruit. This report is a ray of hope for the Japanese consumer spending, considering that purchases of big-ticket items have been sliding down since the onset of the recession.

No market-moving reports were released from this Asian giant yesterday. Only the monetary base, which recorded a 6.1% increase, was on schedule. For today, the Japanese economic calendar is report-free. Economic reports from the US, however, could allow for shifts in risk sentiment. Now let’s see if the JPY could still benefit from a surge in risk aversion…

The orient�s economic giant, Japan, took the spotlight in yesterday�s trading as it won by landslide against most of the other major currencies. The only currency to put a little resistance against the JPY�s torrent was the AUD. The JPY�s momentum may be carried over today given the overall sentiment of risk aversion.

Japan�s monetary base was the only report yesterday. The account stayed the same at 6.1%, contrary to the expectation for a 6.6%. Such report, however, did not have much impact on the JPY.

A broad-based weakness in the global capitals markets was still felt yesterday as investors worry that the markets� current levels are already overbought. The markets continued to slide even with some positive economic reports. Safe havens like the USD and the JPY benefited from the selling of higher yielding assets.

No economic reports are due in Japan today. The JPY may just take a pause today given its sharp rise during the last couple of days and today�s lack of economic flows in Japan. The JPY’s upward momentum may also continue today if risk aversion in the capitals markets persists.

It looks like the yen played nice and gave back some ground back to other major currencies. Despite the one-directional move yesterday, the overall trend remains to be �buy-the-yen.�

No economic report due for release out of Japan today so the yen�s price action would probably be largely dependent on news coming out of other countries. If you still haven�t gotten it, I�m hinting on the US non-farm payrolls due later! Knowing how sentiment could change on a dime, it would be best to see what the report brings to avoid event risk. I did a short blog entry on the US labor market so why don�t you go check it out?

Risk appetite seemed to reign on Friday and we all know what this means for the JPY � it�s not a good thing! The yen sold off on Friday, giving way to higher yielders. The USDJPY and EURJPY pairs closed the week at 93.02 and 133.05 respectively, giving up much of the gains it made during the week.

A lot of new songs (economic reports) coming out from Japan this week, but none that are expected to hit the Billboard Top 50. Today, we have the data on bank lending, money supply and the current account all due at 11:50 pm GMT, while tomorrow at 5:00 am GMT, the Economy Watchers Sentiment report will be released. Don�t expect these reports to create much noise on the air waves. It might be better to change the channel and tune into other stations to see what will be playing in other countries. These could dictate and shift risk sentiment.

The safe-havens took a hit yesterday after the G20 ended their summit with a pledge to continue implementing the necessary monetary and fiscal policies until a recovery is secured. The JPY bowed down to commodity currencies as investors became in the mood to take on more risk.

Only the Economy Watchers sentiment is due from Japan today and this report is expected to have minimal impact on the JPY’s price action. The gauge of economic sentiment is aiming for the 43.1 reading after previously landing at 42.4. The actual figure is due at 5:00 am GMT.

Watch out for stronger price movements today as US traders return fresh from a Labor Day holiday. Trading volume and volatility should pick up in today’s trading sessions.

Nothing exciting for the JPY yesterday as it just closed mixed against the other majors. The Yen rallied against the USD but weakened against the EUR and the GBP.

Japan�s current account surplus shrunk to �1.16 trillion from �1.80 trillion. The consensus was �1.41 trillion. Exports have been sluggish once again for Japan. Japan�s economy is somewhat losing momentum after it recently emerged from the recession. In a separate report, Japan�s industrial production gained at the slowest rate in four months in July.

Japan�s economy watchers sentiment index also fell to 41.7 from 42.4. The index was even seen to rise to 43.1. The latest reading is its first dropped in 8 months. This also signals that Japan�s recovery may be losing pace.

The results in both accounts do not reflect well in Japan�s economy and may send a negative signal for the JPY in the short term.

Japan�s preliminary leading index for the month of July is due today at 5:00 am GMT. The index is seen to improve to 81.9 from 79.9. A reading above 50 indicates that most indicators are positive. A change in the index is known to head the bigger movement in the economy. Hence, an increase in the number could reflect positively on the economy. Such could also give the JPY some short term lift.

Wow, the JPY is really hanging on! I say this because, usually, when the USD takes a dive, the JPY goes along with it as both are considered as safe haven currencies. It seems that this isn�t the case anymore as the JPY remains to be holding its ground against both the EUR and GBP and even gaining versus the USD.

Japan�s economic calendar is pretty light today. In any case, expect to see Japan�s final GDP report for the second quarter of 2009 is due later tonight at 11:50 pm GMT. The preliminary release showed that Japan�s economy grew 0.9% and economists said there probably won�t be any revisions on the preliminary figures.

Still, be wary of increased volatility today as the JPY might be indirectly affected by shifts in risk sentiment caused by interest rate decisions coming out from UK and Canada. There is a tendency for traders to drag the JPY along with their �risk trades.�

It was a good day for yen hitters yesterday, as batters got on based and scored some runs. The JPY finished the day ahead of both the USD and EUR, closing at 91.70 and 133.75 respectively.

Late yesterday, final GDP data was available. There was a revision in the figures, as they showed that Japanese GDP only grew by only 0.6% quarter-on-quarter. Initial reports printed that GDP grew 0.9%. Still, it doesn�t seem like this affected currency trading, as yen pairs barely moved following the report.

At 5:00 am GMT, the Household Confidence report will be released. It is expected that the report will have a printing of 41.1, an improvement from the previous month�s reading of 39.4. This indicates that confidence has picked up. Still, don�t expect the markets to react to this report.

Be on the lookout for reports coming out from other countries. We all know that sentiment can change at any moment. Good luck trading!

After dominating for almost an entire week, risk appetite cooled off last Friday, allowing the safe-havens USD and JPY to make some humble gains. Does this signal a shift in risk sentiment or was it simply a pullback?

The highlight of Japan’s economic schedule for the week is the release of BOJ’s monetary policy statement on Thursday. Along with this, the central bank will make its rate announcement and probably hold rates at their current 0.1% level. What traders are more interested in is whether the BOJ will announce an end to its easing policies, considering that retail sales reported a 15.4% increase and consumer confidence also posted an improvement. Still, the final reading of the Q2 GDP was revised downward from 3.7% to 2.3%, suggesting that the BOJ could maintain its cautious stance… The million-dollar question is: Will the currency market adopt the same cautious tone as well? And will the JPY benefit from it?

Safe-haven currencies like the JPY strengthened yesterday as fears over a trade war between the US and China surfaced. The JPY�s advance was further boosted from indications that the Democratic Party of Japan will not intervene in the currency markets to curb the Yen�s recent gains.

Japan�s final industrial production in July rose unexpectedly by 2.1% after rising by 1.9% in June. It was anticipated to post another increase of 1.9% in July. The indicator’s rise added support to the JPY�s rise yesterday.

Japan�s economic calendar is empty tomorrow. I’d watch out for the release of the US�s RPI and retail sales data, which could effect risk sentiment, and in turn, yen trading. Both US indicators are seen to post positive figures after falling behind in the month prior. Such change could spark another round of risk appetite which could be bearish for the JPY.

Yen trading was mixed yesterday as the currency was able to gain against the pound but fell against the dollar and euro. Still, from a broader time frame perspective, the underlying trend remains to be pro-yen.

Japan�s economic calendar yesterday was completely empty but we�ve got some important data due at 11:50 pm GMT that could cause some volatility on the yen�s movement.

The third quarter BSI manufacturing index, which assesses how manufacturers feel about the economy, is predicted to print a reading of -11.4. If forecast holds, it would indicate that manufacturers are less pessimistic about the economy than the quarter prior. Also to be released is Japan�s report on tertiary industry activity for July. It measures the total change in the value of services availed by businesses. Economists said that it will probably print 0.6%.

Pretty volatile trading for yen pairs yesterday. The yen seemed poised for some major gains during the earlier sessions, but investors furiously sold it off later in the US session. It seems that the good industrial output data coming out of the US prompted an increase in risk appetite in the markets yesterday.

Late yesterday, the BSI manufacturing index and the tertiary industry activity report were both released. The first report indicated that optimism amongst manufacturers improved greatly in the past quarter. The report printed a score of 15.5, which was a lot better than the expected reading of -11.4. Will the Tankan surveys coming up on October 1 show the same report? Will good news spur the yen, which has been on a furious rally the past couple of weeks?

Moving on to service industry data… service demand rose by 0.6% in July, marking the second straight month that it rose. This was in line with forecasts, although it didnt seem to have much effect on the markets.

Later today, we�ve got the Bank of Japan�s interest rate decis… zzzzz. Oh sorry, fell asleep there. What can I say other than we all can pretty much the rate to stay the same at 0.10%… I�d probably give my attention to the accompanying press conference and statement. It�ll be interesting to see what the BOJ has to say about the Japanese economy. We could see the BOJ express some optimism given recent data (improving production and exports), but we should probably expect more caution, given that household spending and unemployment continue to put a drag on the economy. Also, I�d be on the lookout for what is said about future plans, given the recent change in the Japanese government. We may see more volatile trading after Governor Masaaki Shirakawa talks at around 7:15 am GMT.

My my, things are looking sunny for the Japanese economy. The BOJ highlighted improvements in public investments, exports, and production as they upgraded their overall assessment of the economy.

Amidst the notable advancements in their economy, the central bank remained cautious ahead of future prospects and kept their benchmark rate at 0.10%. Being burdened with rising unemployment and worsening incomes, private consumption remains a concern for the Asian nation. Nonetheless, BOJ Governor Shirakawa stated that domestic demand could be boosted by JPY strength.

More details on the central bank’s assessment and outlook for the Japanese economy should be released through the BOJ Monthly Report at 5:00 am GMT today. Would the JPY be able to rally on improved sentiment for their economy?