Talking Points:
- Japanese exports surged at their fastest rate since November 2013 in August
- This indication of strong global demand may have hit the haven Yen
- However, in a Fed-focused market it would be rash to feel too certain
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The Japanese Yen fell against the US Dollar Wednesday despite the release of strong Japanese goods trade numbers for August.
The trade balance came in at JPY113.6 billion (US$1.01 billion), well above the JPY104.4 billion expected by the markets. Within that, exports surged by 18.1% compared to the same month last year. That was hugely ahead of forecasts and nailed down a ninth straight month of gains. It was also the strongest showing from the Japanese export machine since November 2013. Imports rose by 15.2%, slightly below the previous month’s 16.3% gain.
However, the currency market’s reaction to these quite strong figures seems to have been to buy the US Dollar at the expense of the Japanese Yen. This could be because the export numbers attest to ongoing resilience in the global economy, giving Japanese investors incentive to hunt for better returns offshore. Japanese monetary policy is after all stuck in ultra-accommodative mode until annualized inflation sustainably reaches 2%. At 0.4% currently, that blessed day is clearly some way off.
On the other hand, the reaction could simply be a function of thinner markets than usual before the US Federal Reserve’s monetary policy decision. That is coming up later Wednesday (early Thursday morning for Asia Pacific markets).
The Fed is not expected to raise interest rates next month, but it is forecast to give details as to how it will unwind its mathematics-defying, crisis-swollen $4.5 trillion balance sheet. To the extent that this probably very gradual process will represent monetary tightening, the prospect is viewed as US Dollar supportive, hence the recent rise in US yields and the burst of September strength visible on the USD/JPY daily chart.
The Bank of Japan will give its September policy dispensation on Thursday but, with Prime Minister Shinzo Abe now quite hotly tipped to make a snap election announcement this week, there may be very little new for markets here.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
