Week in FX Asia – Yen Continues to Slide Awaiting Kuroda at Jackson Hole

• Japanese Manufacturing Points to Industrial Rebound
• Chinese FDI Falls –0.35% From Last Year
• China PMI Slow Down (50.3) to Affect Commodities

The JPY continues to weaken versus the USD this week. Strong manufacturing numbers boosted industrial hopes, but the main focus was on the world’s largest central banks. The gathering of policymakers in Jackson Hole Wyoming was the main focus on a week that saw dissent from the minutes of the Federal Reserve and the Bank of England. The USD/JPY continues to head higher and blew past the 103 level. It remains to be seen if the Bank of Japan’s Governor Kuroda could see the currency even lower after his speech on Saturday. Resistance for the pair sits firmly in the 104 level. After this week the new support line rests on 103.08

Japan manufacturing activity got a boost from the flash PMI numbers. Both export and domestic demand rose. This is good news considering the setback to domestic demand by the introduction of consumer sales tax hike in April. The BoJ has so far played down the long lasting effect of that fiscal decision. The early survey on manufacturing seem to validate the read on the impact from the central bank.

Chinese manufacturing continues to be a big question mark holding China back. The flash PMI numbers were barely above expansion at 50.3 in August. This is considerable drop from July’s 51.7. The forecast was for the reading to be close to the 18 month high of last month. Commodities were hard hit by the release as demand from China is sure to slow down reducing the price of raw materials.

Foreign direct investment into China fell for the first time in 17 months in the January to July period. Firms from Japan, Europe and the US have cut back their manufacturing investment. Low FDI and a weaker PMI have rekindled doubts about the Chinese growth goals for 2014.

The economic and diplomatic relationship between Japan and China continues to be strained. Japan is suffering from lower exports to China and has pulled their investment as well. China has also fined Japanese auto parts companies which has complicated the flow of goods and services.

The USD advanced versus the CNY this week. Strong economic data out of the US and a rate hike positive environment have given the USD further strength. Chinese data was underwhelming and as anti trust probes continuing do not paint a quick recovery for the Asian giant.

Next Week For Asia:
The market’s focus will continue to be in Wyoming of all places. The Jackson Hole Economic Symposium will continue this weekend. Bank of Japan Governor Kuroda will present a speech at the Jackson Hole Symposium in the US on Saturday. Following the Fed’s Yellen and the ECB’s Draghi will be no small feat. The Bank of Japan has been criticized by the market for not doing much after taking the world by storm last year. Kuroda accepted the task of making PM Abe’s goals a reality. Inflation continues on a strong path, as imports grow more expensive. In particular energy imports that since the Fukushima nuclear disaster have made Japan even more dependant on outside sources. Inflation is on deck this week with the National and the Tokyo CPI’s to be published during the the week. PM Shinzo Abe vowed to get Japan on a 2% inflation rate in two years and at least on this front he seems to be delivering with a big help from energy and food imports.

Next week will bring further clarity to the expected economic recovery out of the US. Durable good and Consumer confidence will start the week. US GDP will also be published with expectations of growth making the disappointing Q1 numbers a thing of the past.

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