JPY news - page 16
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Japan Q2 GDP (final): 0.2% q/q (0.0% expected) ...
GDP Annualized (seasonally adjusted) for Q2: 0.7% BEAT
GDP Nominal (seasonally adjusted) for Q2, q/q: 0.3%
GDP Deflator y/y for Q2: 0.7% (deflator is a measure of inflation ... still well below the BOJ target of 2%)
GDP Private Consumption for Q2, 0.2% q/q
GDP Business Spending for Q2, -0.1% q/q ... not a great result, still negative, but a BEAT
Sharp Rise in US Bond Yields Triggers USD/JPY Break Higher
After showing some resilience at lower levels with a net decline in yen demand, the dollar pushed to highs above 102.40 in US trading as US 10-year bond yields moved sharply higher.
There was an upward revision to Japan’s second-quarter GDP data to 0.2% from the originally reported 0.0%, although the price index was slightly lower at 0.7% from 0.8% which maintained concerns over low inflation.
Bank of Japan member Nakaso stated that reducing monetary policy accommodation is not on the agenda for the September policy review and that the meeting will discuss what needs to be done to achieve the 2% price target at the earliest possible time. He also commented that a deepening of negative interest rates would not be ruled out while the bank would need to strike the correct balance between policy effects and negative impact on the financial sector.
Firmer Dollar Stabilizes USD/JPY
USD/JPY dropped sharply into Wednesday of this week, establishing at least a temporary bottom at the 101.207 level, which corresponds to a 61.8% retracement of the recovery from the August low. This retracement must continue to hold in order to keep open the possibility for a rest of the recent highs in the pair over the near term. A drop below the 61.8% Fibonacci retracement would solidify the renewed downtrend in USD/JPY and leave the target at the key 100/99 zone.
Intraday support ahead of Thursday’s low has been established at the 101.95 level and the pair is currently gaining ground following a test of this level. 102.60 represents the next level of overhead on the hourly chart, with follow through above this level having the potential to spark additional buying, leading to a retest of the 103 zone.
Such a move would bring the falling trendline dating back to the late January 2016 highs back into play. This trendline was tested and failed with the pair’s recent rally into the early September highs and a break above this level is required to suggest a sustainable, longer term bottom has been established in the pair at the 100/99 zone. On a breakout above the falling trendline, the target becomes a move to the August high at 104.32.
Bank of Japan (BOJ) Facing a Crisis of Credibility Ahead of Comprehensive Meeting
The Bank of Japan (BOJ) will attempt to clarify its stance on monetary policy at its upcoming Board meeting September 20-21, amid growing signs that officials are split on the size and scope of future stimulus efforts.
The Bank’s “comprehensive assessment” of policy next week will attempt to clarify policymakers’ position on inflation and negative interest rates. In particular, BOJ Governor Haruhiko Kuroda and Deputy Governor Hiroshi Nakaso will explain why the Japanese economy is still on pace for 2% inflation and how the Bank will handle negative interest rates in the future.
Japan’s consumer price index (CPI) declined at an annualized 0.4% in July, the fifth consecutive month of deflation. That’s not even in the same realm as the BOJ’s target of 2% in “about two years.” That partly explains the BOJ’s crisis of credibility, as policymakers appear to be running out of firepower to reinflate the economy.
Some of the Bank’s unorthodox measures, such as negative interest rates, have also proven extremely unpopular among the general public. Some analysts even argue that the Bank’s ¥80 trillion a year bond-buying program has reached its practical limit.
The credibility crisis doesn’t end there. Japan’s gross domestic product (GDP) expanded at a scant 0.2% pace in the the second quarter. That was slightly better than preliminary government estimates, which showed the economy stagnated in April-June.
The BOJ’s crisis of credibility can also be observed in the currency markets, where the Japanese yen has scored massive gains despite repeated stimulus efforts by the Bank. The yen is up 15% against the US dollar in 2016, having reached multi-year highs on successive occasions. The USD/JPY exchange rate closed at 102.6800 on Friday.
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Japan Core Machinery Orders Rise Unexpectedly in July
Japan’s core machinery orders rose unexpectedly in July, a preliminary sign that improving demand was leading to higher corporate spending.
Core machinery orders, a volatile data series regarded as an indicator of mid-term capital spending, increased at a seasonally adjusted 4.9% in July, Cabinet Office data showed Monday. A median estimate of economists called for a decline of 2.8%. Orders had spiked 8.3% in June.
Volatile capital expenditure has placed more pressure on the government to stimulate growth in one of the world’s most moribund major economies. The Bank of Japan (BOJ) will conduct a comprehensive review of monetary policy at its upcoming Board meeting September 20-21. At that meeting, the BOJ will explain why the economy is still on track for 2% inflation despite recent data showing the complete opposite is the case. Policymakers will also outline how the BOJ will handle negative interest rates over the long term.
The BOJ first ventured into negative-rate territory in January, a move that proved extremely unpopular among market participants.
The Japanese economy expanded just 0.2% in the second quarter, revised estimates showed last week. Capital expenditure fell 0.1% on the quarter, compared to a preliminary estimate of a 0.4% decline. Economists believe that, without a substantive boost, Japan’s economy will remain stagnant in the final two quarters of the year.
Japan data - Business Sentiment Index for Q3
This survey analyses business leaders' assessments of and forecasts for the economy
- prior -11.1
- For the next quarter, October to December, the index is seen at +8.6
Firms see 2016/17 capital spending (capex) up 4.9% y/y (against +3.8% for the previous survey).USD/JPY: Holding Near Term Support
USD/JPY is testing support at last week’s 101.21 low, which represents a 61.8% Fibonacci retracement of the advance from the August bottom. A sustained break below this retracement level would negate the positive implications of the recent recovery in USD/JPY and increase the probabilities of a complete retracement with a move back to the key support zone at 100.00/99.00. At present, USD/JPY is off its intraday lows and trading just above the 102 handle.
The advance from the August low failed at the falling trendline dating back to the late January 2016 highs. The failure to move above this trendline also established a lower-high, maintaining a longer term downside bias in the pair and suggesting that price action in recent weeks has merely been a drawn out consolidation amid a still-intact longer term downtrend.
On the upside, resistance is at last Friday’s high at 103.05. A move above this level would bring the longer term falling trendline back into play, an area currently expected to once again put pressure on the pair. A break above this trendline could elicit further buying resulting in a move to test the next higher resistance at 104.32. The negation of the long term pattern of lower highs is required to suggest a recovery in the pair could have some legs. At present, however, the probabilities of such strength developing appear rather low.
The action of the RSI on the weekly chart supports an ongoing bearish trend in USD/JPY, as the indicator has maintained a depressed level in the rebound attempts that have taken place since July, signaling that price momentum has been lacking. Typically, in a strong market environment, the RSI will be able to surpass the 60 level. However, in the case of USD/JPY, the RSI has struggled to get above a reading of 40 on the weekly chart. The developments on the weekly chart suggest the next important move in the pair will be a drop below last week’s low and follow through toward the key 100 mark.
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Yen slumps on BOJ report but proceed with caution
Nikkei reports the BOJ plans to keep rates negative
A report from Nikkei on the BOJ is doing the rounds.
It's been characterized by a newswires as saying the BOJ "plans to position taking interest rate futures into negative territory"
The story says the BOJ will maintain its -0.10% rate but on going further it says this:Some observers had predicted that the bank would use the review as a chance to scrap negative rates in light of objections from the financial sector over diminished profitability. The BOJ instead appears intent on sticking to the policy.
Any decision to take rates deeper below zero will require careful consideration of the yen's exchange rate and the state of the broader economy. And debate will likely proceed cautiously. "It's not as though we can keep lowering rates forever," a BOJ official said.
So there might be some consideration but it doesn't sound promising.
An important caveat also says the BOJ will consider trimming purchases of 25-year and longer bonds in order to boost longer-term yields. That's a yen positive (the market is selling yen at the moment).
They also note that the BOJ "will likely forgo" purchasing foreign bonds, which is another yen positive.
Finally, they write that the BOJ will consider abandoning a pledge to hit the 2% inflation goal in two years while retaining a commitment to hit it at some undefined point.
source
Japan - Reuters Tankan shows Manufacturing Index +5 in September
The monthly Reuters Tankan (the BOJ tankan survey is quarterly)
USD/JPY: Preparing For Another Disappointing BoJ Meeting
The BoJ meeting on 20-21 September appears to be attracting more market attention than the Fed meeting also taking place on 21 September. Option markets show a clear premium in USDJPY vol vs. the rest of G10 vol around the two-week tenor coinciding with the BoJ meeting
Indications of strong market interest in JPY abound across the vol space. The divergence in implied correlations, with JPY correlation drifting higher suggests markets are looking at the JPY as a potential driver for FX volatility (Figure 6). At the same time, the front-end tenor USDJPY risk reversal skew has moved close to zero over the course of the past few weeks, pricing USDJPY calls at a near flat premium to USDJPY puts
This sharp increase in demand for optionality around the BoJ meeting and the shift in relative pricing for USDJPY calls vs. puts to the highest point in almost a year suggests the market is approaching the upcoming BoJ meeting with high expectations for a dovish outcome, one that would likely drive spot USDJPY higher. We think these expectations will once again be disappointed.
Our economists are in fact expecting little to no change in policy from the BoJ at the upcoming meeting. Specifically, the spotlight next week is expected to be on the BoJ's "comprehensive assessment" of its NIRP+QQE policies. Our economics team believes this assessment will be broadly positive, pointing to improved borrowing and investment data as proof of its policies' success. In absence of a considerable change in how BoJ officials view their own policies, a significant change in said measures is unlikely.
If anything, our team believes there is a small possibility of a cut in the tier 3 IOER rate from -0.1% to -0.2%, or of a slight upgrade in JGB purchase targets from JPY80tn to JPY80-90tn.
In light of the large and rapid shift in expectations, we are not convinced that such changes are likely to be viewed as satisfactory relative to market pricing, especially at a time when much more aggressive policy options (e.g., direct financing of government spending on infrastructure) are being weighed in the financial press. As such, we see high potential for disappointment and continue to target USDJPY at 95 in three months.
As a technical-based trade, Credit Suisse maintains a short USD/JPY trade from 103.90 targeting 100.
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