Japanese Yen May Be On The Verge Of Longer-Term Bearish Trend
The move raises the question of whether the longer-term bullish trend that has been expected is underway. Also adding to the Asian currency’s downfall was increasing speculation that the BoJ will ease monetary policy further as consumer prices fell 1.2% in February, marking a full year of deflation. Yen weakness gave a boost to shares of exporters as demand for Japanese goods is expected to rise as they become cheaper. The Merchandise Trade Balance in February widened to 651 billion yen from 63 billion the month prior as exports jumped 45.3% from a year earlier. Demand from abroad helped bring an end to the country’s recession as it posted growth of 1.1% in the fourth quarter, but falling prices threatens the recovery and increases the potential for a double dip recession.
The minutes from the February’s Bank of Japan monetary policy meeting were released and revealed conflicting views over the economy. Several members were saw risks becoming balanced while others still see “considerable” downside risks. The hot button topic continues to be deflation which generated calls for policy makers to “act swiftly and decisively”. The cenral bank is expecting prices to continue falling into 2012 which has solidified the Yen’s status as the funding currency as the BoJ is expected to remain on hold until price growth returns. Although other central banks are still far from tightening, they have begun to lay the growudwork for a future rate hike with most forecasted to begin by year’s end.
The Japanese fundamental calendar typcially offers very little event risk and this week may be no different. However, the Tankan large manufacturers survey is closely watched and the expected improvement to -8 from -18 could raise some doubts over the central banks urgency to take additional measures. Nonetheless, the main driver of price action will be risk sentiment and with the U.S. labor report expected to show joib growth of 195K, we could see a surge in optimism. At the very least the outlook for a Fed rate hike will improve which should be a supportive factor for the dollar. -JR
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