Week in FX Asia – JPY Back to Fundamentals

  • Japanese trade balance deficit increases to 1.07 Trillion
  • Bank of Japan says gradual JPY slide good for economy
  • China’s PMI rises but growth doubt persists

Japan’s trade deficit increased despite a positive growth in exports that could not overcome the rise in imports. A weaker currency gave exporters a boost but also made imports more expensive. Even with lower energy prices the growth in imports increased the deficit.

The USD/JPY broke through the 108 price level as safe haven flows have been reduced on the back of stronger US economic data and geopolitical turmoil easing. Inflation data in Japan and the FOMC could further weaken the JPY, which is something the central bank endorses if it’s a gradual shift. Rate divergence regains priority after investors look at the fundamentals.

On Monday, BoJ Governor Haruhiko Kuroda stated that Japan’s economy continues to improve modestly, although consumer demand has lessened since the consumption tax hike in April. The BoJ would prefer to stay on the sidelines, but there has been talk that the central bank could step in with additional stimulus if the economy takes a turn for the worse. Such a move would weigh on the already weak Japanese yen.

The flash Purchasing Managers Index (PMI) in China beat expectations as it rose above its September reading 50.2 to 50.4. The preliminary data points to the resilience of the world’s second largest economy as labor market and export demand remain strong despite other economic pressures.

Next Week For Asia:

Next week two central banks in the region will issue a rate statement: Bank of Japan and the Reserve Bank of New Zealand. There is no changes forecasted by either central bank as all eyes will be on the US Fed and their rate decision but more importantly the statement that could give a hint for future monetary policy.

This week will kick off on Sunday as the European Central Bank (ECB) will release the results from the Bank Stress Test results. Reports emerged today that as many as 25 banks will fail the tests. Earlier articles singled out 11 banks. The ECB has declined to comment until the actual test results are released.

The biggest event next week will be the US Fed’s Federal Open Market Committee (FOMC) interest rate decision on Wednesday. There are no rate change expectations, but there is a lot of anticipation as this will mark the final bond-buying cycle as the Fed positions itself to raise rates in 2015.

The final USD Gross Domestic Product figure will be reported on Thursday. The expectation is for a drop in the rate from the impressive Q2, but still a strong 3.0%. The trends that emerge after the FOMC will be validated or netted versus the US Economy’s GDP final number in the third quarter.

Later in the week inflation becomes a major trend to watch as the German Consumer Price Index, Japan’s National Consumer Price Index and the Euro-Zone Consumer Price Index Estimate are released in the final two days of the week.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* USD Durable Goods Orders
* USD Consumer Confidence
* USD Federal Open Market Committee Rate Decision
* NZD Reserve Bank of New Zealand Rate Decision
* EUR German Unemployment Rate
* USD Gross Domestic Product
* EUR German Consumer Price Index
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index Estimate
* CAD Gross Domestic Product
* CNY Manufacturing PMI

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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