The yen gained this past week on negative news

aka economics gone crazy...

Japan’s GDP for Q1 was a record decline since records began contracting by 4 percent over the quarter and by 15.2 percent on an annualized basis. That reflected a 26 percent fall in exports over the quarter alone.

These are truly catastrophic numbers. So what does the yen do? It strengthened against not only the dollar but also against the European currencies.

That’s one up for non-economic forecasting since as I suggested last week, the dollar could not muster sufficient strength to even test the 97.00 level and we just saw the Dollar decline directly. It’s going pretty close to my (non economic) forecast and I doubt we’ll see it reach above 95.50 to trigger the next round of losses.

In many respects this is merely reflecting the general losses the dollar has suffered across the board, apparently in the face of recent belief that the States will lead the recovery. Indeed, the figures from the States are showing a mild recovery but no more than Europe is also reflecting.

And if we come to think of it, considering the amount of money the governments have thrown at the consumer, it can hardly come as a surprise.

Hence the Bank of Japan has upgraded the economic outlook by saying the worst of the recession may be over. Well, two years ago it was still calling for the gradual upward trend in growth will continue so we should treat that statement with caution.

However, it does seem likely that we will see what is being referred to as “green shoots” in many economies across the globe and this is helping stock markets to recover and for a mild improvement in outlook.

Will this be a lasting recovery or will it end in a sucker’s punch?

The answer I feel will come in the fragile balance of the ability for companies to finance their debt through growth in consumer spending. We are seeing improvement but is this sustainable or just a reflection of the central banks stimulation packages?

Much will depend on the consumer and for the consumer to spend they must have confidence. House prices remain subdued, many house owners still suffering negative equity and jobs still threatened.

Watch this space.

For the coming week I still see the Yen being strong against the Dollar and I’m looking for a move to just below 92.00 before any decent size correction. Even then I’ll be looking for a correction only and more likely an eventual move towards the 87.10 lows over the next few weeks…

It may be more stable against the European currencies which are also expected to strengthen against the dollar over the next 5-10 days – though I feel this may well be the last strengthening for some while and thus most likely we’ll see an eventual strengthening of the Yen against the European currencies over the next few weeks.

Ian Copsey
www.fx-forecaster.com

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