Week in FX Asia – Despite Positive Japan Indicators Strong NFP Weakens Yen

JAPAN

  • Japanese Household spending rose 7.2% in March. Quickest pace in 39 Years.
  • US Non-farm payrolls released on Friday beat expectations. 288,000 new jobs added and unemployment rate dropped to 6.3%.
  • TPP talks between US-Japan didn’t take full advantage of Obama visit. Japan-US agreement crucial for full TPP approval.
  • USD/JPY broke through 102.53 Resistance after NFP announcement.

Central banks around the world were slated to make an impact in the forex market this week. But all eyes would be on the US Non-farm payroll report on Friday. The Bank of Japan held rates and maintained its monetary policy. The central bank reaffirmed its commitment to reach the 2 percent inflation goal set down by Prime Minister Shinzo Abe.

The introduction of the new sales tax increase in April meant that consumers scrambled to increase purchases before it was in effect. An increase from 5% to 8% resulted in higher sales. Retail sales jumped 11% in March. There are criticisms that the sales tax might complicate the inflation target, but the central bank has said that the economy was strong enough to weather any fallout from the tax hike.

The confidence seen by the BOJ in reaching the inflation target means that changes to the monetary policy are not coming as the central bank feels the economy is doing fine on its own. Critics of Abenomics feel that not enough has been made in the trade front as the TPP talks with the US have stalled. Wage rises have shown promise as both large and small enterprises have started to announce raises. So far the monetary policy arrow from Abenomics seems to be on target so its bad news that there will be no doubling down on what has worked so well for Japan even as the other two arrows (reform and fiscal changes) have shown little in way of results.

The USD/JPY continues to reach towards the 103 level after some setbacks earlier in the week. The uncertainty caused by the Bank of Japan, the US Federal Reserve and the US Non-farm payrolls in the same week gave some volatility to the currency pair. The two central banks did not surprise both sticking to their announced monetary policies which in tandem will result in further JPY weakness. The employment figure further cemented the move as the print beat expectations giving no indication that the Fed will change its course towards a potential rate hike in 2015, six months after it ends its tapering in fall of 2014.

WEEK AHEAD

* AUD Reserve Bank of Australia Rate Decision
* JPY Bank of Japan meeting minutes
* AUD Employment Change
* GBP Bank of England Rate Decision
* EUR ECB Marginal Lending Facility
* EUR European Central Bank Rate Decision
* AUD RBA Statement on Monetary Policy
* CAD Unemployment Rate

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza