Japan gets its Wish of Weak Yen

After the tsunami that struck Japan and sent the currency to its strongest level in months government and exporters were in agreement a weaker Yen was a desired outcome. Now that it has come to pass it is not seen a blessing as that same tsunami that strengthened the Yen also crippled the countries Nuclear power production.

The Yen is now weaker but as the price of Oil, a natural substitute of nuclear energy, is on the rise (and denominated in U.S. Dollars) Japan once a trade superavit juggernaut is on the back foot as the positive impact of exports is overshadowed by the amplified negative impact of imports.

China continues its breakneck pace, albeit it has slowed down in the last month in part due to seasonal trends, but still continues to post positive figures. Industrial output grew 11.4 percent when compared to 2011. The forecasts were not met (12.4%) which has raised some concerns. Inflation was down following the Lunar New Year celebrations that impacted food prices in January (10.5 percent) compared to February (6.2 percent).

Below are some other highlights of the week:


  • CNY: China’s PM Wen Jiabao announced a moderate set of 2012 targets at the annual National People’s Congress last weekend. GDP growth is expected to slow to +7.5%, y/y, from +9.2%, y/y, in 2011. Inflation and M2 growth are expected to slow to +4%, y/y, and +14% respectively.
  • AUD: Down-under, Aussie job adverts rose a solid +3.3% last month, after an upwardly revised Jan print. Other releases showed that company profits were weak at -6.5%, q/q, in Q4, while wages and salaries rose +0.8%, q/q, in Q4 while inventories bounced back.
  • PBoC: Policy makers said that they would expand the trial of cross-border trade settlements in CNY. The number of firms who can use the CNY for trade purposes has been increased from the expanded +67k to all firms across the country. This is part of the government’s policy to expand the use of their currency in trade and eventually investments.
  • KRW: Korea’s gross FX reserves rose +\$4.5b to +\$315.8b in February.
  • TWN: Taiwan’s CPI inflation fell to +0.25%, y/y, in February from +2.4% in the previous month. This is due to a sharp decline in food, clothing and housing prices after the Chinese New-Year holidays in January.
  • AUD: The RBA kept its policy rate unchanged at +4.25% mid-week. The futures market is pricing and expecting policy holders to keep rates on hold for two more months. This would suggest that the AUD will have trouble finding momentum.
  • AUD: The balance of payments data showed that foreign holdings of AUD government debt reached a new high in Q4. Foreigners bought about AUD 20bn of government debt and now hold about 84% of the government securities outstanding. Aussies high carry and triple ‘A’ rating remain strong positives, but given the high level of foreign ownership, further increases should be less pronounced and a pullback becomes more likely. Stabilization in Europe could also decrease the demand for AUD debt.
  • PHP: Inflation has eased further. CPI inflation fell to +2.7%, y/y, in February, more than the consensus forecast for a decline to +3.3% from +3.9% in January. This would suggest the BSP remain dovish with ‘no’ easing bias.
  • AUD: Aussie GDP rose +0.4%, q/q in Q4, less than the consensus forecast of +0.8%. Growth in Q3 was also revised -0.2% lower to a still robust +0.8%. It’s also worth noting that the terms of trade recorded a sharp -4.7% decline over the quarter.
  • AUD: Deputy RBA Governor Lowe said that “it’s difficult to make a strong case that the exchange rate is fundamentally misaligned,” and “that makes the hurdle for intervention quite high.”
  • MYR: Malaysia’s exports grew at the slowest pace in 15-months in January, up +0.4%, y/y, from +6.1% in December. Imports rose +3.3%, y/y, from +10.4% previously, while the trade surplus widened to +MYR8.75b from +MYR8.31b in December.
  • JPY: Japan’s current account balance posted a record deficit of Â¥437b in January, worse than the consensus forecast for a Â¥320b deficit. The yen continues to remain vulnerable to intervention and periods of carry trade rebuilding.
  • AUD: Aussie employment fell (-15.4k vs. +5k) but was offset by rebound in hours worked. The loss was driven entirely by a fall in part-time employment as full-time employment was flat on the month. The unemployment rate rose slightly but remained in the +5.0-5.2% range and analysts note that the rebound in hours worked more than offset the retracement in part-time employment.
  • NZD: RBNZ kept rates on hold at +2.5%, but sounded cautious over the currency strength. Policy makers signalled that they remained comfortable with the current policy setting and acknowledged recent improvement in global sentiment and signs of domestic recovery.
  • NZD: The RBNZ’s inflation projection and 90-day interest rate path were revised lower, with inflation now expected to fall to +1.7% in Q4 and the short term interest rate expectation lowered to 3%. GDP growth for 2012 was revised higher to +3.3% from +3% previously.
  • KRW: The BoK kept its policy rate on hold at +3.25%, as widely expected. Governor Kim sounded less dovish than before and highlighted that Korea’s exports are showing steady expansion and that the economy is unlikely to contract in Q1. Policy makers seem happy with gradual won appreciation.





  • Monetary policy announcements continue from JPY, CHF and USD
  • Economic and consumer sentiment is delivered from Germany and USD
  • USD is busy with Inflation Indicators and Retail Sales Data
  • Job data is released in GBP and USD
  • USD’s Philly Fed Manufacturing Index is reported near weeks end


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.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell