Overview and Dynamics
Yesterday's US data on retail sales and production prices for September, released worse than expected, led the US dollar down in value against most major currencies.
The fall of USD / JPY almost 100 points today continued with the opening of the trading day. The dollar against the yen has lost more than 60 points at the current average daily volatility of 116 pips.
Despite the fact that the Japanese stock market saw an increase (index Nikkei Stock Average on the basis of trades rose by 1.2%) and the sale of the yen during the Asian session, USD / JPY pair is reduced, and with the opening of the European session.
Dollar in the USD / JPY pair and commodity currencies weakened today as the background of the fact that market participants reinforced the belief that the Fed will not raise interest rates in the US in October. And coming in recent negative economic news from the United States give reason to believe that the Fed will refrain from doing so in the near future, at least until the spring of 2016.
Thus, according to futures on interest rates in the United States, the probability of rate hike on October 28 at 5%, and in December 30% to 35% on Tuesday.
Reducing the level of retail sales and producer prices in the US indicates a probable slowdown in the economy.
However, the drop in USD / JPY pair may be suspended pending the meeting of the Bank of Japan on October 30. The Bank of Japan sticks to extra-soft economic policy in the country to sustain its economy and the low rate of the national currency. The current strengthening of the yen and buy it as a safe-haven currency could trigger a decision the Bank of Japan to ease monetary policy in the country. At the last meeting in the beginning of the month the Bank of Japan's monetary policy remained unchanged at increasing the money supply by 80 trillion yen a year.
Despite the fact that the Bank of Japan's assessment of the economy in the country, it "continues to moderately recovering," inflation is still below the target level.
According to published data earlier in the week, the consumer confidence index in Japan fell to 40.6, instead of the forecast of 41.6 and 41.7 in August, orders for machinery and equipment fell by 19.1% in annual terms, compared with a fall of 16, 5% in August.
Recent trade data in China, as the biggest partner of Japan in the region, showing a strong reduction in external trade in the country and its economy slowing down, and can create conditions for the maintenance of the Japanese economy by easing monetary policy in the country. Thus, imports into China in September decreased by 17.7 %% at the forecast reduction by 15%, exports fell by 1.1% compared with the same period last year after falling in August at 5.5%.
Now, after lower expectations in interest rate rises in the United States, the central banks of the leading economies of the world, including the Bank of Japan will be forced to return to the issue of stimulating the economy and the easing of monetary policy in their countries. The fragile recovery of the Japanese economy, together with the recent sale of the stock market in Japan could push the BoJ to further mitigate the extra loose monetary policy in the country.
In the meantime, US data on inflation in September as consumer price indices, the publication of which is scheduled for 15:30 (GMT + 3), may provoke a new wave of selling of the US currency, if they are worse than expected.
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