Japan Update - The Yentervention

The Bank of Japan today intervened in the forex market, selling Yen (JPY) as the exchange rate entered the psychologically important 82 yen zone. After the intervention the USD strengthened against the JPY, with the USD/JPY rate rising to about 85.50. The move follows repeated threats by the Bank of Japan to take "decisive steps" if necessary. Japan's Finance Minister, Yoshihiko Noda, noted that the impact of the rising Yen on the economy could no longer be ignored - he also noted that Japan had acted alone in the move. So what does this mean? and what does it signal?


In the short term it probably means more volatility in the JPY, and possibly a continuation of the artificially induced pullback. As Japan is very much a trade driven economy, the exchange rate has a material impact on export competitiveness and thus growth in exports (note exports have still not recovered to pre-crisis levels in Japan).

In the medium to longer term though currency intervention often tends to have the effect of blowing air into the wind; currency intervention has its place at the margins and at the extremes, where it can be quite effective - or as a trigger point. But if the fundamentals suggest the exchange rate should be trending in a certain direction then intervention is liable to backfire.

The move also sends some strong signals about the relative levels of desperation felt by the Ministry of Finance and the Bank of Japan by extension. It means they are getting nervous about the state of the Japanese economy, and maybe they should be. The deflation problem is still there, so is the debt problem, growth has rebounded - but for how long, trade has rebounded - but the exchange rate issue has played a part; global demand will also come into the mix.

So what's the conclusion? Well for one the "yentervention" probably wont work long term, and probably wont have the intended impact of boosting exports. And on the signaling side, well, Japan may well be going the way of the US and we may start seeing double on the double-dip front!

Sources
Econ Grapher Analytics www.econgrapher.com
Global View Forex www.global-view.com

Article Source: http://www.econgrapher.com/15sep-yentervention.html

Econ Grapher - Economic Calendar - 9 August 2010

Here's the Economic Calendar for the week commencing the 9th of August 2010. This week China takes the spotlight with its monthly data dump; there's new loans, money supply, trade balance, CPI, fixed asset investment, industrial production, PPI, and retail sales. Then on the monetary policy front there's Japan, and the US who both meet to review policy this week. The EU is set to announce its second quarter GDP results this week, and from the US will be CPI, UoM & ABC confidence numbers, and the trade balance. Elsewhere there's employment numbers from Australia, consumer confidence from Japan, and house prices in New Zealand.

(More commentary follows the table)

Day	Time (GMT)	Code	Event/Release	Forecast	Previous
MON		CNY	New Loans	600B	603B
MON		CNY	M2 Money Supply y/y	18.6%	18.5%
MON	04:00	JPY	Bank of Japan Monetary Policy Meeting (AUG 9)
MON	06:00	EUR	German Trade Balance (euros) (JUN)	12.0B	9.7B
MON	22:45	NZD	NZ Card Spending (MoM) (JUL)		0.4
MON	23:50	JPY	Housing Loans (YoY) (2Q)		1.0%
TUE		CNY	Trade Balance	19.6B	20.0B
TUE	04:00	JPY	Bank of Japan Rate Decision (AUG 10)	0.10%	0.10%
TUE	06:45	EUR	French Industrial Production (YoY) (JUN)	7.3%	8.2%
TUE	11:30	USD	NFIB Small Business Optimism (JUL)		89
TUE	18:15	USD	Federal Open Market Committee Rate Decision	0.25%	0.25%
TUE	21:00	USD	ABC Consumer Confidence (AUG)
TUE	22:00	CNY	CPI y/y	3.3%	2.9%
TUE	22:00	CNY	Fixed Asset Investment ytd/y	25.4%	25.5%
TUE	22:00	CNY	Industrial Production y/y	13.5%	13.7%
TUE	22:00	CNY	PPI y/y	6.1%	6.4%
TUE	22:00	CNY	Retail Sales y/y	18.6%	18.3%
TUE	00:30	AUD	Westpac Consumer Confidence Index (AUG)		113.1
TUE	00:30	AUD	Westpac Consumer Confidence (AUG)		11.1%
WED	09:30	GBP	Bank of England Quarterly Inflation Report
WED	12:30	USD	Trade Balance (JUN)	-$42.2B	-$42.3B
WED	18:00	USD	Monthly Budget Statement (JUL)	-$165.0B	-$180.7B
WED	22:30	NZD	Business NZ Performance of Manufacturing Index		56.2
WED	01:30	AUD	Employment Change (JUL)	20.0K	45.9K
WED	01:30	AUD	Unemployment Rate (JUL)		5.1%
THU	04:30	JPY	Industrial Production (MoM) (JUN F)		-1.5%
THU	05:00	JPY	Consumer Confidence (JUL)	43.9	43.6
THU	05:00	JPY	Consumer Confidence Households (JUL)	43.9	43.5
THU	08:00	EUR	ECB Publishes Monthly Report (AUG)
THU	09:00	EUR	Italian Trade Balance (Total) (euros) (JUN)		-1957
THU	09:00	EUR	Euro-Zone Industrial Production w.d.a. (YoY)	9.3%	9.4%
THU	22:00	NZD	REINZ Housing Price Index MoM% (JUL)		0.6%
THU	22:00	NZD	REINZ Housing Price Index (JUL)		3230.6
THU	22:45	NZD	Retail Sales (MoM) (JUN)	0.5%	0.4%
FRI	09:00	EUR	Euro-Zone Trade Balance (euros) (JUN)		-3.4B
FRI	09:00	EUR	Euro-Zone Gross Domestic Product s.a. (QoQ)		0.2%
FRI	09:00	EUR	Euro-Zone Gross Domestic Product s.a. (YoY)		0.6%
FRI	12:30	USD	Consumer Price Index Ex Food & Energy (YoY)		0.9%
FRI	12:30	USD	Consumer Price Index (YoY) (JUL)		1.1%
FRI	12:30	USD	Advance Retail Sales (JUL)		-0.5%
FRI	12:30	USD	Retail Sales Less Autos (JUL)		-0.1%
FRI	12:30	USD	Retail Sales Ex Auto & Gas (JUL)		0.1%
FRI	13:55	USD	U. of Michigan Confidence (AUG P)		67.8

Starting with the economy of the week, China will be reporting it's major data points this week for July. The first batch will likely be the data from the PBOC which includes lending data (which by the way will likely be fairly static around 600B as the regulators crack down on excessive lending), and money supply data, then there's the trade data from the customs department, which is likely to be unchanged, but as always - I'm keeping a close eye on the export/import levels as a kind of proxy for international trade volumes and as a bit of a gauge for global activity - i.e. if there's another major slump it will show up in Chinese exports. Then there's the data from the National Bureau of Statistics; inflation is likely to pick up a bit, and industrial production will likely follow the course suggested by the PMI readings i.e. down; the rest will likely be fairly standard.

Now, onto the monetary policy reviews; Japan is likely to be fairly ho-hum, to be sure - likely not to see any changes in the i-rate for quite a while; the only thing to watch for would be any additional stimulus measures e.g. the lending program they previously announced. The US is likely to be a similar story, but the rumors are increasing... or more likely the speculation is increasing that the Fed may implement additional stimulus measures to cement the recovery and counter any possibility of a double-dip recession (which remains a real risk).

Keeping with the US, there's also the other consumer confidence indicators from there; the ABC index, and the University of Michigan consumer sentiment index, the trade balance (which is expected to stay around negative 42B), the consumer price index (which is likely to show inflation around 1%), the monthly budget statement, and of course retail sales on Friday. The data points will add to the picture for the US economy, which is looking increasingly mixed - albeit weighted to the downside.

Elsewhere in the world there's the second quarter GDP figures from the EU, which will attract considerable interest given the recent financial system and sovereign debt concerns raised around there. Aside from the US, the other economies reporting confidence are Japan; which is expected to rise slightly, and Australia, which will likely be about sideways as the election draws near. The Aussies have also got their employment numbers out this week, which are likely to show continued jobs growth; likely better than New Zealand's results - who is set to release July house price data on Thursday.

So as always, have a great week, watch out for surprises, and stay tuned for updates...

Sources
DailyFX www.dailyfx.com/calendar
Forex Pros www.forexpros.com/economic-calendar/
Forex Factory www.forexfactory.com/calendar.php
Bloomberg www.bloomberg.com
+various statistics websites and central bank websites for verification

Article Source: http://www.econgrapher.com/9aug-calendar.html

Japan Holds Rates, Faces Critical Challenge of Deflation

The Bank of Japan decided to "encourage the uncollateralized overnight call rate to remain at around 0.1 percent." The decision was driven by the "critical challenge" of deflation.

Jumping to the last paragraph of the Statement on Monetary Policy, it's clear that the rate will stick around 0.10% for some time:

"The Bank recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability. To this end, the Bank will continue to consistently make contributions as central bank. In the conduct of monetary policy, the Bank will aim to maintain the extremely accommodative financial environment."

But it's not all gloom and doom for Japan, in fact Growth has finally turned positive thanks to a recovery in international trade.

"Japan's economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand. Exports and production have been increasing mainly against a backdrop of high growth in emerging economies.

Business sentiment has been improving. Business fixed investment is leveling out. Private consumption, notably durable goods consumption, is picking up mainly due to policy measures, despite the continued severe employment and income situation.

Public investment is declining. Meanwhile, financial conditions, with some lingering severity, have shown increasing signs of easing. The CPI (excluding fresh food) is declining on a year-on-year basis due to the substantial slack in the economy as a whole, but the moderating trend in the pace of decline has continued."

Thus for now, Japan continues to be reliant on exports for growth; on the upside though it is positioned well to leverage off any further pick up in global trade (likely driven by emerging markets). But it still faces the heavy burdens of significant fiscal challenges and the deflation dilemma.

Sources:
Econ Grapher Analytics www.econgrapher.com
Economic and Social Research Institute www.esri.cao.go.jp
Japan Statistics Bureau www.stat.go.jp
Bank of Japan www.boj.or.jp

Article Source: http://www.econgrapher.com/7apr-jpy.html