USD/JPY Continues to Struggle

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Market Drivers August 15, 2016

Japanese GDP misses
Market in tight ranges in lackluster trade
Nikkei 0.00% Dax 0.27%
Oil $44/bbl
Gold $1345/oz.

Europe and Asia:
JPY GDP 0.0% vs. 0.2%

North America:
NAHB Housing Market 10:00

It’s be a typical slow summer session of trade in the currency market with most of the majors eking out very narrow ranges amidst little speculative flow and no fresh fundamental news. USD/JPY however continued to struggle as it dipped below the 101.00 level before finally finding some support.

Japanese GDP came in considerably weaker than expected printing at 0.0% versus 0.2% on a quarterly basis and at 0.2% versus 0.8% on an annualized basis. Net exports were a major negative drag on GDP slicing 0.3% off the number. Exchange rates continue to wreak havoc with Japanese exporters efforts and given the recent appreciation of the yen the problem will not improve in the near future.

The market however did not show much a reaction to the data and the pair was actually bid in early open Asian trade as some of the GDP decline was attributed to leap year effects. Stripping out that factor Private consumption actually increased by 1.2%.

Later on however in morning European dealing USD/JPY was pushed lower on reports that the government was negotiating with banks on borrowing at zero rate level. The banks, which serve as the primary source of credit for government short term budget funding needs, have told the government that making tender offers at negative rates would make it difficult for them to finance the operations.

The latest skirmish illustrates the difficulties of BOJ’s monetary policy as it approaches the zero bound level. To boot, the BOJ is now top five owner of 81 companies on the Nikkei 225 and by end of 2017 will likely become the largest shareholder of 55 companies on the index as it continues to expand its QE buying program. With so much capital expanded and so little to show for it on both the exchange rate and growth fronts, Japanese officials must becoming increasingly frustrated with their policy choices, yet given the current market conditions there appears to be little that they can do at this to improve the current situation.

Boris Schlossberg
Managing Director

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