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

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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.

Date

Last

Open

High

Low

Change %

Sep 21, 2012

78.16

78.22

78.37

78.11

-0.07%

Sep 20, 2012

78.21

78.39

78.46

78.02

-0.23%

Sep 19, 2012

78.40

78.77

79.22

78.26

-0.47%

Sep 18, 2012

78.77

78.68

78.87

78.49

0.11%

Sep 17, 2012

78.68

78.34

78.93

78.17

0.43%

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

Date

Currency

Event

Actual

Forecast

Previous

Sep. 17

USD

NY Empire State Manufacturing Index 

-10.4

-2.0

-5.8

Sep. 18

USD

Current Account 

-117.4B

-125.5B

-133.6B

 

USD

TIC Net Long-Term Transactions 

67.0B

45.3B

9.3B

 

NZD

Current Account 

-1.80B

-1.64B

-1.07B

Sep. 19

JPY

Interest Rate Decision 

0.10%

0.10%

0.10%

 

USD

Building Permits 

0.803M

0.796M

0.811M

 

USD

Housing Starts 

0.750M

0.765M

0.733M

 

USD

Existing Home Sales 

4.82M

4.55M

4.47M

 

NZD

GDP (QoQ) 

0.6%

0.3%

1.0%

Sep. 20

JPY

Trade Balance 

-0.47T

-0.37T

-0.37T

 

USD

Initial Jobless Claims 

382K

375K

385K

 

USD

Continuing Jobless Claims 

3272K

3300K

3304K

 

USD

Philadelphia Fed Manufacturing Index 

-1.9

-4.0

-7.1

 

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

Date

Time

Currency

Event

Forecast

Previous

Sep. 25 

15:00

USD

CB Consumer Confidence 

62.0 

60.6 

 

23:45

NZD

Trade Balance 

-606M 

15M 

Sep. 27

23:45

NZD

Building Consents (MoM) 

 

2.0% 

Sep. 28 

00:30

JPY

Unemployment Rate 

4.3% 

4.3% 

 

00:30

JPY

Tokyo Core CPI (YoY) 

-0.3% 

-0.5% 

 

00:50

JPY

Industrial Production (MoM) 

-0.5% 

-1.0% 

 

00:50

JPY

Retail Sales (YoY) 

-0.2% 

-0.8% 

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 

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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