Ralph Shell @ 2:22 PM, Thursday April 22 2010
In the most recent IMF report summarizing various economies they said that Japan may need to further ease their very loose monetary policy, fearing that deflation can derail their fragile economic recovery. The Japanese economy is located in the area of the world where the pace of economic recovery has been the quickest. Chinese demand for Japanese products was strong as March exports advanced 43.5% ahead of the depressed 2009 number. The Japanese Trade Balance for March did show a modest increase.
The Bank of Japan, who meets next week, has been reluctant to take measures to fight deflation with loose money and other measures. Recently the Minister of Finance, agreeing with the IMF assessment of the Japanese economy, pressured the BoJ to try the easier money approach, but not everybody is aboard with this approach.
There are some competing ideas on the nature of the global recovery and Japan's role in that recovery. A recent Bloomberg article quoted an economist with RBS Securities who said:
"A V-shaped recovery is taking place in exports and it’s been continuing for longer than expected because of solid demand from emerging nations,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “A favorable cycle toward a full-fledged recovery is firmly under way.”
Last week the turmoil in the Europe combined with the fraud accusation against Goldman made the yen a popular "equity off" currency. Despite out breaks of global equity bearishness this week, the yen has failed to attract buyers. Failure for the yen to show additional strength this week might be viewed as bearish the yen. Is today's come back in US equities meaningful or is it just random market noise?
It looks to us like the markets are shrugging off the bear news, for the moment, and trying to move higher. Should that be the case, can the USD/JPY again try the 95 level. Yes, the economic activity in their Asia area will provide their exporters with opportunities, but this business is needed to offset the aging Japanese population's diminishing demand. Further a weaker yen helps expand the export markets. Currently we are trading in the 93.25 area where we want to try the long side of the USD v the yen with a risk down to 92.65.
Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.