Week in FX Asia – Yen Slides Continues as China joins the QE Club

  • USD/JPY broke 115 before retreating after US NFP
  • PBOC Publishes Liquidity Measures
  • China growth continues to slowdown

The surprise actions by the Bank of Japan (BOJ) last week continue to impact markets. As expected the Bank of England and the European Central Bank did not alter their monetary policy this week. The BOJ expanded its asset buying plan in order to further stimulate the Japanese economy that had lost some steam after the sales tax hike in April. The central bank had been quiet for most of 2014, but sprung quite the treat on Halloween day as market analysts were not expecting policy action until further deterioration was evident. The preemptive decision by governor Kuroda also speaks of the growing criticism of Abenomics’ effectiveness. This week both the government and the BOJ have pledge their support to the 2 percent inflation target, although the 2 year timeline has so far been dismissed as more of a moving target than a calendar event.

The USD/JPY continues to gain even after the disappointing US Non-farm payrolls figure the came in under analysts forecasts this morning. The headline number was balanced against the positive decline in the unemployment rate that touched a six year low in October. The JPY’s decline has been criticized both outside and inside Japan. There have been calls of the BOJ sparking a new currency war to give an advantage to local exporters from foreign governments. There have also been calls from inside the government and business groups to defend the currency as the decline is seen as too fast. The current support and resistance levels are (S 114.39 and R 115.85) there is still a bullish trend forming on the pair.

The People’s Bank of China (POBC) announced today its medium-term lending facility. The central bank disclosed that it had pumped $126 billion into the country’s top lenders in the past two months. The PoBC is trying to avoid using a more direct use of monetary policy via an interest rate cut, and instead has opted for alternative measure such as these liquidity injections. The Chinese economy continues to slowdown although the pace has been reduced but there is still a long way to above 7.5% growth. A Chinese drop in demand has hurt commodity producers the world over. In a bid to counteract the US and Japan led Trans Pacific Pact (TPP) Beijing has pushed the Asian Pacific Economic Cooperation (APEC) summit to create a trade pact.

The Chinese manufacturing PMI compiled by HSBC was inline with expectations, but continues to be barely above expansion with a 50.4 reading. Service PMI saw a bigger reduction from 53.5 last month to 52.9. Chinese companies are hard at work with increased orders in the short term, but their expectation for the future is not as optimistic which explains the lower figure as new orders will not grow at the same pace and companies will work through their backlogs.

Next Week For Asia:

After this weeks Central Bank events and North American employment situation next weeks economic reporting look rather anticlimactic. Fundamental events for the first two weeks in November have been boom for intraday volatility and market volumes. Historically, the first N.A trading session after a payroll release is usually the quietest trading day of the month.

Nevertheless, China leads things off on Sunday with yearly inflation numbers. The Aussies market gets to look at NAB’s Business Confidence report. Tuesday should be quiet as nations respect veteran’s day in the U.S and Armistice or Remembrance Day in Europe/Canada.

Late Tuesday, the RBNZ Governor Wheeler is due to hold a press conference about the Financial Stability Report, in Wellington. Wednesday is dominated by the U.K with average earning reports, claimant count, while the BoE’s Governor Carney is due to hold a press conference, along with other MPC members, about the Inflation Report also release that day.

North America rounds off the week with manufacturing and retail sales reports on Friday.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* CNY New Yuan Loans
* CNY Consumer Price Index
* GBP Bank of England Inflation Report
* EUR German Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product
* USD Advance Retail Sales
* USD U. of Michigan Confidence

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