USD/JPY breaks through 118 price level
BOJ still confident on 2% Inflation target
OPEC decision fallout could benefit Asia
Softer economic data out of Japan drove the USD/JPY higher even after policy makers and analysts stated that the JPY was weak enough. Inflation continued gaining year over year, but it has been doing so at the slowest pace after the April sales tax. Core inflation fell below 1% and there are growing concerns that with cheaper energy prices Japan won’t get any inflation boost through imports.
Exports have grown at a faster pace in Japan but not even a weaker Yen has been able to significantly change the course of the economy. The main reason for this is that following a globalization and cost reduction strategy Japan has outsourced almost a third of it’s manufacturing. For comparison in the 80’s only a tenth of Japanese companies manufactured out of Japan. This shift makes it hard for Yen weakness to boost exports overnight and it reduces the overall impact they can have on the bottom-line of corporations.
BoJ Governor Haruhiko Kuroda addressed the central bank readiness to act if needed earlier in the week. According to Kuroda the soft yen is having a negative effect on the Japanese economy. The yen received a boost after the BoJ minutes showed that some policymakers opposed the BoJ’s decision to expand its stimulus program in October. At that time, the BoJ shocked the markets when it increased its government debt purchases from JPY 60-70 trillion to 80 trillion per year. The division within the BOJ could make it harder on Kuroda to introduce further stimulus. The governor stressed the need to act now and the measure is seen as a preemptive to avoid Japan losing even more momentum after the April sales tax hike.
The Organization of the Petroleum Exporting Countries (OPEC) held its production setting meeting this week in Vienna. There was much speculation regarding the final decision as the price of crude has been falling as demand continues to shrink while production continues unchanged. Oil producing countries were disappointed as the OPEC maintained the 30 million barrels a day ceiling while the price of oil around the world dropped to below $80. Asia has been one of the winners as energy importing nations such as China, Japan and India have been taking advantage of low prices. For Japan it is a mixed bag as there is a trade deficit benefit but an inflation hit.
Next Week For Asia:
The bulk of the market’s attention will again be on central bank decisions and reactions. It all starts with the gold referendum in Switzerland on Sunday. No matter which way the vote goes, investors will want to cash in on some of their existing positions. Meanwhile, the Reserve Bank of Australia’s rate decision will kickstart Australasia’s week. The Bank of England, ECB, and Bank of Canada will all make public statements in middle of the week before giving way to the number one economic indicator: the U.S. non-farm payrolls report on Friday.
Fore more market moving events visit the MarketPulse Economic Calendar
WEEK AHEAD
* CHF Swiss Gold Referendum
* USD ISM Manufacturing
* AUD Reserve Bank of Australia Rate Decision
* AUD Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product
* CAD Bank of Canada Rate Decision
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* GBP BoE/GfK Inflation Next 12 Months
* CAD Unemployment Rate
* USD Change in Non-farm Payrolls
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