Fundamental Forecast for Japanese Yen: Neutral
The Yen fought back against the U.S. Dollar this week, gaining a shade over 1.00 percent, as the currency fell below the 81.00 exchange rate once again. The last time the Pacific Rim nation’s currency closed at such a rate was back on May 17. The data out of Japan this past week was relatively unremarkable, as it had very little impact on moving Yen-crosses, nor was there any data that is historically considered to be market moving. The only reports that were of interest to the markets came in near expectations – the National CPI reading, and the retail trade reading – such that underlying market trends overpowered the two key releases out of Japan this week.
The week ahead has some significant data on the docket for Japan, with most of the data coming in the beginning of the week. To begin, on Monday, housing starts data for April will be released, and the report is expected to show a decline of 3.9 percent, which is expected given the catastrophic natural disaster and ensuing nuclear crisis. Later on Monday, Japanese unemployment data will be released, which is forecasted to show a slight downturn in the labor market, with the rate falling to 4.7 percent from 4.6 percent. At the same time industrial production data for April will be released, and initial forecasts show that manufacturers are likely to have stepped up production in April, by a 2.2 percent expansion. Following the earthquake in Japan, rumors were abound about how Japanese companies would repatriate funds in order to help rebuild Japanese infrastructure; this number could be evidence of such an occurrence. Overall, production is forecasted to remain depressed by 12.4 percent from the same period last year. While the Bank of Japan is hosting an international monetary policy conference, it is unlikely to have much market impact.
The Yen has been revitalized recently as a safe haven currency, even though it would be beneficial for the economy to experience a weaker domestic currency at this point, in order to boost capital inflows to the nation, which in turn could help the economy pull itself out of a tailspin and boost price pressures. It is important to note that if the USD/JPY pair exchange rate drops below 80.00, there will likely be rampant speculation about a potential coordinated intervention on behalf of a weaker Yen. -CV
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