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Yesterday, the price action in USD/JPY was driven by global sentiment on risk and by core bonds markets. With investors turning cautious on risk ahead of Bernanke and US bonds yields trending south, USD/JPY was under moderate pressure, too. In this respect, USD/JPY was the exception with respect to a broad-based rebound of the dollar. The pair tested the recent lows in the 78.50 area, but the level held. USD/JPY closed the session at 78.63, still little changed from the 78.71 close the previous day.
This morning, Japanese equity markets underperform the rest of Asia due to poor Japanese eco data (industrial production well below consensus, deflation remains stubborn). Risk-aversion outweighs poor Japanese data. So, USD/JPY is drifting lower even as the dollar is well bid overall. Similar considerations might also be at work for the reaction of USD/JPY to the events at Jackson Hole. If Bernanke would stop short of hinting more policy stimulation, this will probably be good for the dollar overall. However, it won’t be easy for USD/JPY to join this move in a context of risk-aversion. So, technical considerations might still prevail. The topside in USD/JPY will probably remain difficult.
Japan releases most of their data at one time each month, today, is that day. Industrial production resumed its slide, falling 1.2 percent in July from June amid slumping global demand, the government released today. It’s a disappointing sign for the world’s third-biggest economy and suggests that any sort of recovery is sputtering.
But weak global and domestic demand is weighing on manufacturers, particularly electronics makers, who are facing intense competition from South Korean, Taiwanese and other Asian manufacturers. The strong yen, which erodes overseas earnings, is also eating into profits.
The industrial production index was the lowest since May 2011, when manufacturers were still reeling from disruptions from the massive earthquake and tsunami that hit northeastern Japan two months earlier.
Other economic data released today showed that the unemployment rate remained unchanged at 4.3 percent, while core consumer prices, minus fresh foods, fell 0.3 percent in July, reflecting persistent deflation, which also drags on economic growth.
On the labor front, the seasonally adjusted jobless rate remained at 4.3 percent for the second month. That’s down from 4.6 percent earlier this year but up from a recent low of 4.2 percent in September.
The Ministry of Internal Affairs and Communications said its survey showed that the number of employed fell 90,000 to 62.77 million in July, while the number of jobless people decreased 240,000 to 2.88 million.
There was little reaction in the JPY as markets remain fixated on Jackson Hole ahead of Mr. Bernanke's speech later today.