Yen bears fail to take full advantage of poor numbers

Since the latter half of January when the yen peaked against the dollar at 87.10 it weakened by around 14.5 percent into the end of the fiscal year. The market was generally aware of the serious damage inflicted on the economy here from a combination of the yen’s strength and the speed of the deterioration in the industrial output figures.

It sounds logical but it is very common for the market to come up with the reason after the move has occurred. Let’s face it, the double impact of the severe global downturn on an export reliant economy together with a sharp appreciation in the currency’s value was pretty simple to anticipate. However, it didn’t stop the market from selling dollars like there was no tomorrow.

So what of the economic releases last week? Industrial production was down nearly 40 percent over the year, vehicle production down by 56.2 percent and the Tankan report (a Bank of Japan survey on industrial conditions) plummeting by more than expected. What’s more, unemployment jumped by 0.3 percent to 4.4 percent while there were only 60 jobs available for every 100 applicants.

Indeed, as we all know the recession has been labeled as Japan’s most serious economic downturn since World War II.

One would have expected the impact on the yen to be more pronounced.

It has weakened but not within any “frenetic” sense that is often applied to currency moves. Indeed, the last 3 days of last week saw very grudging losses.

Is it any coincidence that those three days were the one after the end of the fiscal year?

Indeed, it’s not uncommon for the yen to behave in unusual ways around this time of year as companies seek to dress their year end balance sheets and it does actually favor exporters to have a weak yen to make their overseas revenue and assets look positive.

Those of you who have followed this blog will know that I have been favoring the Yen to weaken to the 102-103 area and that I have been talking about a cyclic high in the value of the dollar against the yen around this time.

Well, here we are having tipped just over the 101 level today. In my world of measuring each move in the exchange rate to arrive at where it should move next the 102-103 area still looks good. But if the combination of the dollar’s cycle high and my projected target is correct this will be the weakest we shall see the Yen for the entire year.

There is a shortage of funds and there’s a mountain of investment in U.S. Treasuries just waiting to be realized. Maybe not yet since as I mentioned last week, the first appreciation in the yen will first be viewed as a correction. The real impact is probably not due until the end of next month.

Ian Copsey



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