USDJPY – 105.00 Still in View?

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Market Drivers July 14, 2016

Abe advisors deny any talk to helicopter money
CNY Trade bit better
Nikkei 0.84% Dax -10%
Oil $46/bbl
Gold $1341/oz.

Europe and Asia:
AUD Westpac -3.0% vs. -1.0%
CNY Trade 48.11B vs. 46B
EUR IP -1.2% vs. -0.8%

North America:
CAD BOC Rate Decision 10:00

USD/JPY retreated off its highs in Asian and European session trade dropping below the 104.00 figure before bouncing back after Japanese officials poured cold water on the idea of “helicopter money”.

In early Asian trade Japanese PM advisor Koichi Hamada stated that the idea of “helicopter money” where the central bank would create demand deposits directly to consumers rather than the banking system would be “a risky gamble” noting that it would be best to coordinate monetary and fiscal policy instead.

Yesterday’s meeting between PM Abe and former Fed Chief Ben Bernanke who created the concept of “helicopter money” spurred speculation that Japanese authorities may be entertaining the notion of non-conventional policy measures and created a massive rally in USD/JPY taking it within a whisker of the 105.00 level.

After a slight correction, USD/JPY once again regained its footing rising to 104.70 in mid morning London dealing after PM Abe stated that he directed the government to do everything possible to reach 3% nominal GDP. Coming off his impressive win this weekend, which now guarantees him a supermajority in the Upper House, Mr. Abe appears to be reinvigorated and determined to reflate the Japanese economy and the currency market is responding in kind.

Japanese officials are clearly frustrated with the high value of yen as the pair receat ntly hit parity despite better than expected labor data from US. This week’s series of announcements appears to be a calculated effort to move the exchange rate back towards the 105.00-110.00 level without having to resort to BOJ intervention which proved to ineffective in the past. The combination of fiscal and monetary stimulus is Mr. Abe’s plan to move the exchange rate to more favorable territory and for now it is working.

Elsewhere on the economic front China’s Trade Balance printed a bit better than expected at 48.11B versus 46B eyed but again the increase was a result of sharp decline in imports which contracted by -8.4% versus -0.3% forecast. With internal demand still waning Chinese growth is likely to slow in Q3 of this year and may force further depreciation in the yuan as the quarter goes by. The market however showed little reaction to the news.

In North America today the focus will be on BOC which holds its monthly meeting and will have a presser 15:15 GMT. Although the market does not anticipate any action from the central bank, traders will be eager to hear any hints of possible easing in the near future. With oil having hit a ceiling at the $50/bbl level the Canadian economy clearly feels the pinch and the latest data shows that labor demand has slowed which may force the central bank to abandon its neutral posture. If that turns out to be the case USD/CAD could pop to 1.3200 before the day’s end.

Boris Schlossberg
Managing Director

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