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BOJ's Kuroda: Will adjust mon pol as needed
Bank of Japan Governor Kuroda
Final Japanese Industrial Production Unchanged at 1.5% in November
A final reading of Japanese industrial production was unchanged for November, official data confirmed Tuesday.
Industrial production rose 1.5% in November, unchanged from last month’s preliminary reading, the Ministry of Economy, Trade and Industry said in a final estimate. A median estimate of economists forecast no change from the initial December 28 estimate.
Compared to a year ago, industrial production increased 3%, official data showed.
Shipments rose 1% compared to October and were up 4.6% from a year ago. Inventories declined 1.6% and were down 4.8% year-over-year. Meanwhile, the capacity utilization rate rose 3%.
USD/JPY: To Stay 'Firmly' In 110-115 Range During For Some Time
The USD/JPY entered a correction phase in the two-month "Trump rally" since the US presidential election.
We had felt that the rate could slump to around ¥110 on at least a partial unwinding of long positions amassed by overseas speculators during the Trump rally. Some importers may have seen their dollar-buying contracts knocked out, forcing them to repurchase. Some institutional investors have hesitated to buy new unhedged foreign bonds at the rich level of around ¥115, but may gradually unwind their hedged (dollar short) positions.
We believe dollar selling from an unwinding of speculative long positions will be absorbed by such purchase of Japanese companies and investors with dollar short exposure, which should firmly keep the USD/JPY in a ¥110-115 range for some time.
The Trump administration will take office on 20 January. We suspect the markets may stay in dull tone for coming months thereafter to gauge whether the president will carry through with his fiscal policy promises. We believe the path this year of the US economy, presently at near full employment, will depend on policy introduction rather than cyclically autonomous change. We do not consider it meaningful to predict market developments until US fiscal policy is clear.
If fiscal policy buoys the economy, raising expectations of more than two rate hikes by the Fed within the year, the USD/JPY could rally again to the ¥120 level.
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USD/JPY Breaks Above Upper Trend Channel Line
USD/JPY was little changed earlier in the session but has since moved higher on the heels of the release of upbeat data out of the U.S. and the ECB interest rate decision. The pair is currently trading at 115.39, up 0.64% over Wednesday’s North American close.
As a result of today’s move higher, the pair has pierced the upper boundary of the falling trend channel which has contained price action since the beginning of the year and has edged above the corrective bottom established January 5/6. Both are bullish developments that suggest a retest of the December/January rally highs is now possible.
However, should sellers step in and the breakout is proven false, the risk of a break below this week’s lows and a follow through decline to test the lower boundary of the channel would increase. A drop below 114.40 would confirm a false breakout.
With the Stochastic, a price momentum oscillator, producing a positive cross from an oversold level, but still well below overbought territory, the current bias is to the upside.
USD/JPY is benefiting from strength in the dollar following the release of a round of strong economic data. Initial jobless claims fell by 15,000 to 234,000 (versus consensus at 252,000) for the week ending January 14, while continuing claims for the week ending January 7 decreased 47,000 to 2.046 million.
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Japan: Reuters Tankan Manufacturing Index +18 in January (vs. Dec. 16)
From Reuters monthly Tankan report, which is similar but more frequent than the Bank of Japan Tankan (produced quarterly):
USD/JPY: To Remain Volatile In The Week Ahead; Staying Neutral
USD/JPY – NEUTRAL BIAS – (112.50-116.50)
So far in January, exporters have been covering their real demand, pushing USD/JPY lower. Japanese investors have also been making seasonal cash repatriations, supporting the JPY. These factors could weigh on USD/JPY topside. Fed Chair Yellen further revealed her hawkishness this week.
Market expectations for more rate hikes could support the lower bound for USD/JPY.
The new US president’s inauguration speech today may shake USD/JPY, but we do not expect any further details about his fiscal policy plans.
USD/JPY forecast for the week of January 23, 2017
The USD/JPY pair had a volatile week, but more importantly than that we ended up forming a bit of support. If we can break above the top of the candle, we should continue to go much higher. I believe that the massive rally that we have seen recently will continue given enough time, so having said that I don’t have any interest in selling. Given enough time, I believe that the market reaches to the 125 level. However, we are a bit overextended in general, so it might be choppy going forward. Certainly, we won’t have the type of impulsivity that we had seen previously.
USD/JPY Weekly Forecast January 23-27
USD/JPY experienced volatility but, overall, ended last week little changed, down a mere 0.12%. Trading was uneventful on Monday, as the U.S. was on holiday. On Tuesday, however, the dollar sold off sharply in reaction to comments from now President Donald Trump. He stated in a Wall Street Journal interview that the dollar was “too strong,” and this sparked a wave of selling in the greenback that resulted in a sharp decline to a low for the week near 112.60 in USD/JPY.
Federal Reserve Chair Janet Yellen, however, helped the dollar’s case on Wednesday. Although the dollar dipped following the release of December CPI, the greenback quickly recovered and the advance accelerated as Federal Reserve Chair Janet Yellen spoke from San Francisco at 15:00 ET. Yellen’s comments were hawkish, as she stated that waiting too long to raise interest rates could spark the “nasty surprise” of inflation. Thus, “waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road – either too much inflation, financial instability, or both.”
This resulted in a rebound in USD/JPY on Wednesday and follow through on Thursday to test the upper boundary of the falling trend channel which has contained price action since the beginning of the year. Also tested as a result of the Wednesday/Thursday advance was the corrective bottom established January 5/6.
However, the ongoing upside potential of USD/JPY was called into question with the subsequent pullback from the highs, as the dollar sold off following further comments from Federal Reserve Chair Janet Yellen, who was speaking from Stanford during early Asian trading hours Friday. Her remarks were less hawkish than those earlier in the week, as she stated the Fed should continue to raise interest rates slowly to keep inflation low and jobs plentiful and avoid harming the recovery the Fed has sought to nurture.
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Japan Corporate Survey - most see red line for USD/JPY at 125
The latest poll of business in Japan from Reuters shows Japanese companies believe that neither Trump nor Japan PM Abe want to see the yen weaken significantly
Japan’s Economy to Enter “Virtuous Cycle” in 2017: Finance Minister Aso
Despite global uncertainty, Japan’s economy is on track to achieve sustainable economic growth this year, Finance Minister Taro Aso said on Sunday, as quoted by local news agencies.
Aso’s prediction is based on the fiscal 2017 budget, which “is intended to achieve the goals of both reviving the economy and restoring fiscal health,” he said in prepared remarks before Japanese parliament.
On the current state of the domestic economy, Aso stressed that “a virtuous cycle is emerging,” citing steady employment growth.
Latest industrial production figures showed encouraging trends for the world’s third-largest economy at the tail end of 2016. In November, industrial output rose 1.5%, government data showed last month. That was slightly below forecasts calling for a 1.6% gain.
However, the real positive was in the details. Inventories fell 1.5% on the month and were down 4.8% compared to a year earlier. With the decline, inventories are at their lowest level since the value-added tax hike. Lean inventories suggest stronger production numbers in the coming months.