Lackluster Asian Data Weigh On Currencies

Chinese data was a bit disappointing this morning while Japanese data beat forecasts. Overall market sentiment shifted a bit away from risk off mode. The Japanese yen gained this morning. Against the US dollar the yen gained 32 points to trade at 102.90 while the EUR/JPY dipped 44 points to 114.12. Japan—Bank of Japan Gov. Haruhiko Kuroda said he would act quickly if the yen’s rise threatens his inflation goal, highlighting his caution over exchange rates ahead of a major international convention.

“Be it exchange rates or anything, if it has negative effects on our efforts to achieve our price-stability target, and from that perspective if we figure that action is necessary, we will undertake additional easing.

The Wall Street Journal reported that the yen has strengthened 3.2% against the dollar since the U.K. vote. A stronger yen makes Japanese exports less competitive abroad and makes items imported to Japan less expensive, potentially pulling down inflation. Between 2013 and 2015, a weaker yen helped push Japanese corporate profits to record highs.

“A stronger yen won’t bring anything good,” said Mari Iwashita, chief market economist at SMBC Friend Securities. “It’s clear this will hit corporate confidence—something BOJ Gov. Kuroda is so concerned about.”

The dollar was changing hands at around 102.90 yen in morning trading in Tokyo. Japanese firms had expected the dollar would be traded at more than ¥111 in the current fiscal year, which ends March 2017, according to the BOJ business survey, suggesting that companies relying on exports will likely need to downgrade profit forecasts.

The one bright spot in Japan’s uneven economic recovery remains the job market. There were 136 jobs for every 100 job seekers in May, the highest level in nearly a quarter-century, according to labor ministry data released Friday. The unemployment rate was unchanged at 3.2%, the lowest among the Group of Seven industrialized nations.

Friday’s disappointing reports will put a renewed focus on the central bank’s meeting later this month, as markets try to gauge whether policymakers will unleash more stimulus to prop up Japan’s economy.

The Bank of Japan’s massive 80 trillion-yen monetary easing plan is a cornerstone of efforts to bring an end to years of the deflation that held back growth in the once-powerhouse economy.

Falling prices may sound like a good thing for consumers but they tend to delay spending, which in turn hits firms’ hiring and expansion plans, which is bad for the economy.

The Aussie and the kiwi climbed in the morning session against a stronger US dollar. The Aussie is trading at 0.7459 while the NZD added 13 points to 0.7147. Hopes of additional stimulus from both Japan and China helped the commodity currencies to rally.

Activity in Chinese factories suffered its sharpest deterioration for four months in June, figures showed Friday, as weak demand and industrial overcapacity weighed on the world’s second-largest economy.

The figures are the latest to highlight a long-running growth slowdown in the country as the global outlook weakens.

The private Caixin Purchasing Mangers’ Index of manufacturing activity came in at 48.6 in June, down from 49.2 in May, the Chinese financial magazine said in a joint statement with data compiler Markit. It was also well off the median forecast of 49.2 in a Bloomberg News poll.

A reading above 50 signals expanding activity, while anything below indicates shrinkage.

Investors watch the figure closely as the first available indicator each month of the health of the economy.

Manufacturers shed jobs for the 32nd straight month, Caixin said, as they sought to cut costs in the face of a drop in new work.