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Continued Disinflation in Japan Pressures Bank of Japan With falling oil prices and a rather moderate economic growth rate, the core inflation rate in Japan slipped back to deflationary territory in November, putting further pressure on the Bank of Japan (BoJ) to expand its monetary stimulus program.
The nation wide inflation gauge fell 0.3% in November when compared to the previous month, while it rose 0.3% over the year, the Statistics Bureau in Tokyo said on Friday.
After food and energy adjustment, inflation in Japan rose 0.9% in November, up from 0.7% rise over the year in the previous month.
At the same time the inflation rate measured in the Tokyo area stagnated at 0.0% in December over the month as well as over the year. On the average annual basis, inflation rose 0.7% in 2015 in Tokyo area with core inflation rising also 0.7% on the average annual basis in 2015.
The inflation rate in Japan is far away from the BoJ's 2% inflation target as a moderate economic growth rate and external factors such as the massive fall in commodity prices are putting inflation under pressure.
In order to reach the inflation target, the BoJ changed the structure of its massive qualitative and quantitative easing (QQE) program last week, deciding on prolongation the average maturity of asset purchases and launching a new Exchange Traded Funds (ETF) purchasing program.
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USD/JPY – Yen Improves, Flirts With 120 USD/JPY is steady on Friday, as the yen trades at 120.30 in the European session. In economic news, US markets are closed for the Christmas Day holiday. Japanese markets are open, and there were two minor indicators on the schedule. BOJ Core CPI remained steady at 1.2%, while BOJ Housing Starts improved to 1.7%.
The yen has shown some marked improvement in December, making up for a poor November performance against the US dollar. USD/JPY has dropped some 300 points this month, and touched the symbolic level of 120.00 earlier on Friday, its lowest level since October 28. The Bank of Japan has been under strong pressure to expand its easing program, given the lackluster performance of the Japanese economy, which has been hit hard by the twin blows of weak global demand for Japanese goods and sluggish domestic economic activity. Despite the sluggish economy, the BOJ has been very reluctant to further expand easing, and did not make any changes to monetary base easing of JPY 80 trillion annually. However, the BOJ did make some adjustments to monetary policy at its December policy meeting, announcing that it would purchase 300 billion yen of ETF’s annually, as well as extend the average duration of Japanese government bond purchases to 7-12 years, up from 7-10 years, commencing in 2016. The BOJ kept a low profile over the move, which BOJ Governor Haruhiko Kuroda described as “tinkering”. Given current economic conditions, the BOJ may have to make more significant monetary moves early in the new year, and this could send the Japanese yen to lower levels.
There were a host of US releases on Wednesday, with mixed results. Durable Goods reports were unimpressive, underscoring weakness in the US manufacturing sector. Core Durable Goods slipped by 0.1%, short of the forecast of a 0.1% gain. Durable Goods came in at 0.0%, but this beat the estimate of -0.6%. Housing numbers also disappointed, as New Home Sales dipped to 490 thousand, well off the estimate of 507 thousand. This reading comes on the heels of Existing Home Sales, which posted a weak reading of 4.76 million, its worst performance since April 2014. There was some good news from consumer indicators, as the UoM Consumer Sentiment improved to 92.6 points, above the forecast of 92.1 points and marking a 4-month high.
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USD/JPY forecast for the week of January 4, 2016 The USD/JPY pair did very little during the course of the week as we faded into the New Year’s holiday, and also have to deal with relatively strong support at the 120 handle. Because of this, we are simply waiting to see whether or not we get a supportive candle in order to start buying, because quite frankly this has been a market that has seen quite a bit of bullish pressure until this year. We have no interest in selling, and believe that the market will ultimately test the 125 handle given enough time.
USD/JPY: Flows, Techs - SFC - Flows:bids 119.00/118.80. More ahead of 118.60/50. Stops below. Offers 119.70/80. More ahead of 120.00. Stops above
-S/T tech: Mixed. Retracement of 120.65-118.70 decline underway. Negative below 120.20/40 with rallies seen as an opportunity to reinstate shorts.
-M/T tech: Negative below 122.20/50 with rallies seen as an opportunity to reinstate shorts. New strategy to follow
-Levels to watch:119.00/118.60 on the downside; 120.00/20 on the upside.
USD/JPY forecast for the week of January 11, 2016 The USD/JPY pair broke down during the course of the week, breaking down below the 118.50 level that had been supportive. That being the case, the market should continue to go down from here, perhaps reaching towards the 116 level given enough time. Ultimately, we have no interest in buying this market until we break back above the 118.50 level, or form some type of supportive candle below that shows the buyers are reentering the market. If we break down below the 115 level, things get very ugly, very quick.
USD/JPY: Dollar Eyes ¥118 Amid Risk Appetite The pair was rising markedly from daily lows on Tuesday as a risk-on session was observed on currency markets, with the EUR/USD pair dropping and stocks rising. The dollar was trading shy of the ¥118 level.
From the yen point of view, the current account in Japan for November declined from ¥1,458 billion to ¥1,143 billion, while the trade balance returned to deficit from ¥200.2 billion to -¥271.5 billion.
Export dropped 6.3% year-on-year in November to ¥5.92 trillion, while imports grew from ¥6.13 trillion in October to ¥6.19 trillion in November.
From the US dollar point of view, the Federal Reserve's beige book will be released on Wednesday, followed by the monthly budget statement.
As for China, the third day of 'stable' fixes for the CNY at 6.5628 is virtually unchanged from Monday and Friday’s fixing rate and looks to have, on the currency side at least, halted the hugely oversold positioning building in the markets.
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USD/JPY: Safe Havens Take Back Seat on Improved Risk Appetite The Japanese yen saw its upside rally end for now as it retreated back above the ¥118 handle versus the dollar, after risk-on sentiment dominated in Asia on Wednesday. Mostly upbeat Chinese trade figures were the largest contributor to the positive sentiment on the markets.
The yen and other safe-haven currencies took a back seat on Wednesday, trading 0.54% lower at ¥118.27. Nevertheless, the yen remains the best performing currency in 2016.
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USD/JPY: Staying Bearish Coming Week: Next Target - BTMU The disappointing start to the new calendar has continued for risk assets which are experiencing their sharpest correction lower since the summer of last year, notes Bank of Tokyo Mitsubishi (BTMU).
"The yen has been the primary beneficiary from the current period of heightened risk aversion resulting in USD/JPY moving closer towards the low from August of last year at 116.15.
The safe haven appeal of the yen is likely to keep it in demand in the week ahead as global investor risk sentiment is likely to remain fragile.
Weakness in global equities, commodity prices, and the renminbi are prompting investors to downgrade their outlook for global growth. External developments will continue to dictate yen direction in the week ahead. There are no significant domestic developments scheduled for the week ahead.
Downside risks for USD/JPY are building which is encouraging a further reversal of yen undervaluation," BTMU projects.
USD/JPY: Yen Retreats From 2016 Highs Although equity markets across Asia suffered sharp declines on Monday, the sentiment on the currency markets improved, with demand for higher yielding currencies. Clear safe-haven currencies such as the yen and the euro lost their previous drive.
Demand for the US dollar was on the rise, as it recovered from its fresh 2016 low of ¥116.51 seen on Friday. USD/JPY traded 0.25% higher at ¥117.26 on Monday.
Risk sentiment improved over the weekend after a Chinese central bank announcement. The People's Bank of China (PBoC) announced implementation of a reserve requirement on offshore yuan accounts, in a bid to stabilize CNH markets. China remains a major focus as its Q4 GDP numbers are due on Tuesday.
As for the Japanese data feed, industrial production in Japan's mines, manufacturers and utilities fell on a monthly basis in November, continuing the losing streak and markedly declining from the October figures, which had shown steady gains.
Month-on-month there was a 0.9% decline in output in November. Industrial output rose 1.7% year-on-year in November, while analysts had been predicting a fall of 1.0%.
USD/JPY: Dollar Ticks Higher on Minimal Volatility The greenback was trading somewhat elevated on Monday and was spotted around ¥117.30 during the London session.
In addition, US traders are off for a holiday on Monday and therefore liquidity will be minimal, resulting in only small movements.
From the yen point of view, industrial production in November declined sharply from 1.4% to -0.9% month-on-month though the yearly print improved to 1.7% from -1.4% previously. In addition, capacity utilization declined from 1.3% to -0.1%. The yen weakened after these figures.
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