Will USD/JPY Find a Bid?

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Market Drivers for August 19, 2013
Commdollars outperform in quiet trade despite mixed data
Japan’s trade balance third largest on record
Nikkei 0.79% Europe – 0.76%
Oil $107/bbl
Gold $1374/oz

Europe and Asia:
JPY Merchandise Trade Balance Total -1024 vs. -773
JPY Leading Index 107.2 vs. 107.0
NZD Performance Services Index 58.1 vs. 55.1
GBP Rightmove House Prices -1.8% vs. 0.3%

North America:

Yet another very quiet summer night as we start the week’s trade with currency markets essentially treading water as the economic calendar remains barren and many of the key players continue their holidays.

The only movement in today’s Asian session came from USD/JPY and the commdollars. USD/JPY initially shot up to a high of 97.85 as the Nikkei rallied on the open, but the pair then sold off sharply on the correction in stocks only to stabilize around the 97.65 level. USD/JPY continues to trade in tandem with the Nikkei as it is back to being driven by risk flows.

Japanese policymakers continue to debate the merits of a sales tax in September while the economic data from the Land of the Rising Sun remains mixed. Today Japan reported its third largest trade deficit on record as exports rose slightly less than forecast at +12.2% vs. 12.8% eyed while imports shot up 19.6% versus an expected gain of only 16.0%. This was the the 13th consecutive trade deficit in a row highlighting just how much Japan’s vaunted export oriented economy has suffered.

On the other hand, in one of the more unusual economic statistics measurements Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management noted that Japanese are eating the least amount of beans sprouts since 2009. Bean sprouts which are viewed as a very cheap source of nutrition in Japan see sales rise when consumers begin to budget. Mr Takumori also notes that an increase in horse racing tickets and a decline in suicides are all symptoms of an improving consumer spending that should help the Japanese economy to recover.

Still with USD/JPY stubbornly below the 100.00 mark, Japanese officials no doubt feel frustrated with the lack of depreciation in the yen. A strong yen will not only dampen any hopes of strong recovery in exports, but will also make it much more difficult to break the country’s decades long deflationary cycle. Therefore its quite possible that BOJ officials may decide to increase QE measures in the foreseeable future if they see no progress on the exchange rate front.

With no data on the North American calendar, the glacial pace of trade may continue into the US session with currencies taking their cues from the equity market. For now the dollar continues to suffer from the doubts regarding the taper and the markets may not get any additional clarity on that issue until the release of the FOMC minutes this Wednesday.

Boris Schlossberg
Managing Director

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