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Japanese Yen Soars as Industrial Production Tops Expectations

Japanese Yen Soars as Industrial Production Tops Expectations

2011-03-30 00:52:00
David Liu, Technical Strategist
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Today’s February Japanese industrial production numbers surprised markets. Month to month industrial production for February came in at 0.4%, surveyed at -0.1%, with January’s previously reported at 1.3%. Year to year industrial production came in at 2.8%, surveyed at 4.0%, and previously 3.5%. Higher than forecasted production data was coupled with a jump in inventory accumulations in electronics and heavy machinery. The Japanese yen was higher against major currencies after an early weakening before data release; USDJPY was at 82.440, GBPJPY was at 116.437 and EURJPY was 132.055 immediately after the announcement. The benchmark Nikkei 225 opened higher, +0.58% at 9511.63, led by the technology sector.

Market_Alert_Japan_IP_Feb_20110330_body_combmajor.png, Japanese Yen Soars as Industrial Production Tops Expectations

Charts generated with FXCM Strategy Trader

Although industrial production ranks in importance among GDP, CPI and interest rate changes, Japanese industrial production data rarely has a major impact on the currency. Though Japanese markets have correlated with industrial production, JPYUSD has had a near zero or negative correlation with MoM industrial production since 2005. However, with Japanese growth and the Japanese yen in heavy focus this month due to the Sendai Earthquake and recovery efforts, the higher than forecasted industrial production data has bucked that trend.

Market_Alert_Japan_IP_Feb_20110330_body_Picture_1.png, Japanese Yen Soars as Industrial Production Tops Expectations

Charts generated with Bloomberg Professional L.P.

The Bank of Japan’s 0.10% interest rate has not led to a large increase in industrial production or economic growth, primarily due to Japan’s high savings rate and the Bank’s unwillingness to inject liquid into the economy. However, with record government injects of JPY 3.5 trillion into the capital markets, the G7’s recent intervention of the yen, and increasing calls in the National Diet to create a post-WWII style reconstruction committee to cope with the earthquake, cash on the Japanese capital markets are expected to be enough to foster economic growth. In additional to higher domestic goods and inventories demand from the Sendai Earthquake recovery, a weaker yen caused by possible continued intervention may increase exports, leading to a possible higher industrial production in the future.

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