USD/JPY Weekly Fundamental Analysis September 24-28, 2012 Forecast

Introduction: In the USD/JPY trade, trying to pick tops or bottoms during that time would have been difficult. However, with the bull trend so dominant, the far easier and smarter trade was to look for technical opportunities to go with the fundamental theme and trade with the market trend rather than to trying to fade it.
Against the Japanese yen, whose central bank held rates steady at zero, the dollar appreciated 19% from its lowest to highest levels. USD/JPY was in a very strong uptrend throughout the year, but even so, there were plenty of retraces along the way. These pullbacks were perfect opportunities for traders to combine technicals with fundamentals to enter the trade at an opportune moment. 

• The interest rate differential between the Bank of Japan(BoJ) and the Federal Reserve
• Japanese government intervention to maintain their currency sends USD/JPY lower

Weekly Analysis and Recommendation:

The USD/JPY fell this week after opening at 78.34 and climbing to 78.93 the pair declined to close the week at 78.16. Regardless of the strength of the USD, against the JPY there was little action. Even after the BoJ introduced new monetary stimulus which only weakened the JPY for a partial session.

The sluggish performance of Japanese industrial production is likely to continue in the months ahead, reflecting softer demand for the country’s exports. Industrial output decreased by 1.0% m/m in July; preliminary data for August will be released on September 27th, and we expect a reading of -0.8% m/m.  On September 19th, the Bank of Japan joined the US Federal Reserve and the European Central Bank in providing additional monetary stimulus to the economy by increasing the size and the length of its asset purchase program. By these actions, Japanese policymakers are seeking to ward off deflation and to provide a boost to private spending, as well as to dampen the yen’s appreciating pressures stemming from further rounds of monetary easing by global central banks. Nevertheless, persistent investor risk aversion continues to support the yen, keeping the currency stronger that the country’s economic fundamentals would warrant, while hurting the nation’s exporters.

Asian markets will put Japan’s troubled economy into the spotlight and may therefore result in thank you cards coming from Europe.  Each of jobs, household spending, retail sales, CPI, industrial production and housing starts will be updated for the Japanese economy.  The fact that the country’s economy is troubled is an understatement.  Retail sales have been falling, deflation has reared its ugly face again and is expected to persist into the September readings, and factory output has been in a free-fall over recent months.  This was supposed to be a better year for sustained gains in the economy in the wake of last year’s devastating earthquake and tsunami but two forces are pummeling growth.  One is economic weakness in China and turbulent political relations with that country.  The other is an elevated yen that shook off an additional ¥10 trillion in monetary easing by the Bank of Japan to push higher yet.  A driving force behind the yen is that domestic deflationary pressures have widened the real rate gap compared to other countries that are experiencing soft inflation.  Yen strength is seriously eroding the competitiveness of Japan’s domestic production and exports.  Further to this issue will be minutes to the Bank of Japan’s meeting on August 8th-9th at which the additional stimulus was unexpectedly announced.  They will be parsed for evidence on why the additional bond buying was delayed until into next year, and for further color on what motivated the announcement other than obvious points like weakness spilling over from China, yen strength, and political pressures.  China releases the final print on the private sector version of its manufacturing PMI in the wake of the continued deterioration in the preliminary ‘flash’ reading that was released this past week.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks. 

Major Economic Events for the week of September 17-21, 2012 actual v. forecast for Yen, the Aussie, the Kiwi and USD

Economic Highlights of the coming week that affect the AUD, JPY, NZD and USD

Government Bond Auction

Date Time Country 

Sep 24 09:10 Norway 

Sep 24 09:30 Germany 

Sep 24 10:00 Belgium 

Sep 24 15:30 Italy  

Sep 25 08:30 Holland 

Sep 25 08:30 Spain 

Sep 25 09:10 Italy  

Sep 25 14:30 UK 

Sep 25 17:00 US 

Sep 26 09:10 Italy  

Sep 26 09:10 Sweden 

Sep 26 09:00 Germany