Ralph Shell @ 1:54 PM, Monday November 29 2010
In the weeks after Fed Chairman Bernanke's announcement that his new QEII would be forthcoming in his fresh effort to stimulate the economy, the yen was the darling of the safe haven buyers. The Japanese exporters wined about the dire future for their business, and the Minister of Finance likewise confirmed the economy was slowing. On September 15th the Bank of Japan took a stand and bought the USD and sold the yen, briefly running the yen back down to 85.70 versus the USD. The yen's weakness was short lived and the yen continued to appreciate toward the 80 handle.
Intervention was costly for the BOJ. On Friday they reported a first half loss of 160.4 billion yen (about $1.9B), its biggest loss in a six month period since 1998. With the yen getting stronger specs loaded up long the yen and this left the USD ripe for a rally. Following the lead of Bernanke, the BOJ announced their own stimulus plan, only $61B, but enough to halt the appreciation, as spec longs then sold out their long positions.
Forewarned, the economic news from Japan has remained uninspiring. This morning it was reported retail sales were -0.2%, much less than the estimated +0.8% and + 1.4% in the previous period. With Japanese consumer prices falling for the 20th month in a row, the aging Japanese population seems content waiting for lower prices.
This morning from NewsOnJapan.com, the Skeptical Speculator reported:
"The relatively weak run of economic data from Japan recently is continuing......Japan’s export growth slowed more than forecast in October, weakening the boost from trade that has led the nation’s recovery from its deepest postwar recession.
Overseas shipments increased 7.8 percent from a year earlier, the Finance Ministry said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a 10.7 percent gain...
Imports climbed 8.7 percent in October from a year earlier and the trade surplus widened to 821.9 billion yen, today’s report showed. Seasonally adjusted, exports were unchanged and imports rose 0.7 percent from September......"
While the softening of the economy has hurt the yen, the events in China and Korea have also been a drag on the yen's outlook. The Chinese economy appears to be paying a price for a zealous stimulus effort that encouraged banks to aggressively lend, financing a building boom and subsequent inflation. It remains to be seen if the Chinese economy will achieve a soft landing, but Japan, as the Chinese largest trading partner, may be heading for some slower exports to that destination.
Japan may also be paying a price because it has some unruly neighbors. The North Korean leader Kim Jong-il is giving his youngest son some on the job training in preparation for his turn to lead. Act up, become a bully, and someone in the West will reward you with wheat, oil, or maybe uranium. Located a little over 200 miles across the Sea of Japan, the North Koreans with their missiles and nuclear capabilities, cannot be taken lightly.
The Japanese do have problems, but with one currency for all their islands, it is nothing like problems confronting the euro. Is it not surprising then, some of the buying on the flip side of the euro selling has not ended favoring the yen?
We do not know if economic numbers or political and financial events are the most important movers in the yen. It would seem that a solution to the Korean problem might be easier and quicker than the euro bank problems. The attached chart depicts a daily chart with a 20 and 50 day MA. We are getting an upside crossover in a market that trends. If we have a retracement back toward the 83 / 83.50 level let's try the long side of the USD versus the yen.
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.