Japanese Yen at Risk On Risk Appetite and Expected Monetary Easing

An unexpected drop in the Japanese unemployment rate continued the theme of improving fundamentals for the island nation which could lead the BoJ to refrain from further monetary easing. A 17.3% drop in capital spending beat estimates of -18.4%, but demonstrates the challenges ahead for an economy that is relying sole on demand from abroad to promote growth. It is widely expected that the central bank will take measures to battle deflation as consumer price fell another 1.3% in February. Japanese finance minister Naoto Kan has requested the central bank’s help in fighting downward spiraling prices. In a recent news conference the finance head state that “I haven’t received any message directly from the BOJ,” regarding additional measures. As other developed nations mount their exit strategies Kan says “Given the economic conditions, we’re not in the situation where Japan can embark on an exit strategy,”  “There are some bright indicators, however the economic situation, such as employment, signals we still need to rely on fiscal spending somewhat.”

 

Upcoming fundamental data may give us a clue on how aggressive policy makers may look to be when they convene during the following week to set future monetary policy. Speculation is that the BoJ is reluctant to take bold measures with interest rates already at 0.10% and an improving global economy. The Eco Watchers survey will provide evidence of the prospect of domestic growth with final GDP figures confirming the economy grew in the fourth quarter. Machine tool orders could be the most significant release as it has significant implication for future growth. Ultimately Japanese fundamentals will have little sway over price action as risk trends dominate direction. A continuation of prevailing risk appetite will continue to put pressure on the yen, upcoming U.S. advance retail sales may be the only upcoming event risk that has the potential to change sentiment. -JR