Yen Racks Up Gains While Mothers Index Rockets 6% Higher

How Did the Markets React?

Running counter to typical price action, Asian markets strengthened across the board today with fixed income prices higher, yen appreciating, and equity indices skyrocketing. Japanese economic data for the day had little to do with market action, however. GDP estimates for Q3 have already showed improvements from Q2, bringing the annual rate of growth up to 2.0%. As a result, the negative aspects of today’s data barely resonated with the markets. The all-industry activity index for September fell 0.9%, consistent with earlier reports showing the tertiary index down 1.3% and industrial production slipping 0.7%. The data highlights general softness in the September data that raised concerns that momentum in the economy is faltering. Meanwhile, the trade surplus narrowed slightly more than expected to 614.7 billion yen on cooling exports. With Japanese markets closed on Thursday for the Labor Thanksgiving holiday.







Japanese 10-Year Government Bonds

Yields on 10-year JGBs continued to decline today, hitting a low of 1.668% amidst public buying of the bonds. Short to mid-term JGBs were weaker, however, on relatively hawkish remarks by BoJ Deputy Governor Muto yesterday, who said the central bank would keep all options open when timing its next rate rise, including the possibility of a December lift. At the end of the trading session, prices had worked up .119 to 101.266 with a yield of 1.650%.







FX – USD/JPY

The FX markets showed a delayed reaction to Japanese economic data, as USD/JPY gradually edged down about 40 points to 117.43 on the slightly better than expected all-industry index. The figure fell 0.9% against estimates of a 1.0% drop, in line with the decline of the tertiary index, which makes up over 60% of the all-industry composite report. Meanwhile, the trade balance offset the mildly positive all-industry index when the surplus narrowed more than anticipated to 614.7 billion yen. Nevertheless, markets took the net result as yen positive as GDP estimates for Q3 have already showed improvements from Q2, bringing the annual rate of growth up to 2.0%. Another factor that could be coming into play is the unwinding of carry trades, as markets close out of positions ahead of the holidays and year end, which serves to benefit low yielding currencies like the yen.








Equities – Tokyo Stock Exchange Mothers Index

Asian equity markets ignored today’s economic data and rebounded after easing lower yesterday. Tokyo’s Mothers index posted phenomenal gains of 6.0% to 1069.72 after slumping to three-year lows earlier this week, as traders find the Mothers smaller growth stocks to be a bargain. Large and mid-cap stocks worked their way higher as well, albeit at a slower pace, as the Japanese benchmark index, the Nikkei 225 rose 1.1% to 15,914.23 and the Topix increased 1.3% to 1,552.87. Banking shares, which took a hit earlier in the week, led today’s gains with Mitsubishi UFJ, the world’s biggest bank by assets, climbing 2.2% to 1,420,000 yen. Overnight gains in commodity prices sent resource stocks jumping, as Sumitomo Metal Mining closed 3.4% higher at 1,414 yen and Inpex, Japan’s biggest upstream oil company, skyrocketing 4.6% to 937,000 yen.