Yen Pressured by Subdued Risk Aversion Despite Production Data

THE TAKEAWAY: October industrial production stronger than expected > Overall Japanese data continues mixed, market confidence continues after first day of Eurogroup summit > Yen weakens

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The Yen strengthened slightly against the US Dollar after October Industrial Production figures beat expectations, before continuing its weakening trend on general market confidence following the first day of the Eurogroup finance ministers’ summit. At the time of publishing, USDJPY was trading above the 78 handle.

According to the Trade Ministry’s preliminary figures, Industrial Production rose 2.4 percent MoM in October, beating expectations of a 1.1 percent rise. On a YoY basis, production unexpectedly rose 0.4 percent, confounding estimates for a 1 percent drop. The rise was driven by an 8.5 percent increase in durable consumer goods production and a 4.3 percent jump in capital goods. At the same time, the Trade Ministry predicted that industrial production would increase 0.1 percent in November and 2.7 percent in December.

The stronger-than-expected production data comes after mixed economic figures over the past two weeks. On the one hand, October retail sales were stronger than expected. However, the trade balance was negative in the same month and the unemployment rate rose more sharply than expected to 4.5 percent, a result of increased layoffs by Japanese firms in the face of the strong Yen. The data reflects an economy that continues to recover from the March earthquake but is expected to lose momentum in coming months.

The Yen has been under pressure over the past few sessions, weakening above the 78 level versus the US Dollar from the 76.54 level reached on Nov. 18 as risk sentiment abated on expectations of further action by European policymakers to lever the EFSF. The recent softening in the Yen may also temporarily reduce speculation of BoJ intervention, though a renewed dip in risk appetite could send the Yen stronger.