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Japanese Yen Shrugs at Strong Local Data After Dovish BOJ

Japanese Yen Shrugs at Strong Local Data After Dovish BOJ

David Cottle, Analyst


Talking Points:

  • Japan exported record values of goods to China and Asia more broadly in December
  • Its manufacturing sector also expanded strongly
  • However, the impact of all this on the Yen was minimal, possibly because the Bank of Japan spoke just the day before

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The Japanese Yen failed to move much Wednesday despite some very solid economic numbers out of its homeland.

The preliminary manufacturing Purchasing Managers Index for January rose to 54.4, from December’s 54.0. In the logic of PMIs any reading above 50 signifies expansion and the latest release was the strongest for 47 months.

IHS Markit compiles the survey and said that Japanese manufacturing has been supported by faster output and employment growth. Perhaps significantly given the Bank of Japan’s relentless attempts to force more pricing power into the economy, Markit also said that output price inflation had accelerated to the fastest rate seen since October 2008.

Official data released earlier showed that December was a fairly brisk month for Japan’s import and export machines, despite an overall trade balance that missed forecasts. Overall it came in at JPY359 billion (US$3.2 billion), above November’s JPY112.2 billion but below the JPY535.0 billion expected. However, the details revealed record levels of monthly value for exports to China and the rest of Asia.

Overall exports rose 9.3%, with imports up a chunky 14.9%.

Despite all this positive news, the Yen barely moved. The BoJ’s complete focus on consumer price inflation as the determinant of when its monetary policy could alter often blunts the impact of data. It may well have done so Wednesday given that just the day before Governor Kuroda recommitted the central bank to leaving all policy settings alone until inflation rises sustainably toward its 2% target.

On its daily chart, the Yen is showing clear strength once more against a broadly weaker US Dollar. This has come despite this week’s apparent assurances from the Bank of Japan that domestic policy is set to remain extremely loose for the foreseeable future.

For now, USD/JPY remains in a steep downtrend. On January 15, it took out the previous significant low- November 27’s 110.84. However, support at recent lows in the 110.17 area remains solid at present and it seems probable and perhaps even increasingly likely that a range between there and 111.49 (last week’s top) could provide the near-term trading parameters.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.