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Japanese Yen Weaker After Data Miss, Fed's Powell Remains in Focus

Japanese Yen Weaker After Data Miss, Fed's Powell Remains in Focus

2018-02-28 00:56:00
David Cottle, Analyst
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Talking Points:

  • Japan’s industrial production came in very weak for January
  • Retail sales were pretty feeble too
  • The Japanese Yen was knocked again by an already stronger US Dollar

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The Japanese Yen took a modest hit Wednesday on some shaky official economic data despite an overall market focus clearly on the ‘USD’ side of the USD/JPY pair.

The numbers were not at all encouraging. January’s industrial production fell by 6.6% according to a preliminary look. The markets had expected a 4% fall. On the year, production rose by 2.7%, well below the 5.3% rise expected. Retail sales underwhelmed too, falling 1.8% on the month (when a 0.6% fall had been forecast) and rising by 1.6% on the year, well under the 2.4% hoped for.

This gloomy set of data takes some shine off a Japanese economy which had been looking quite strong across the board. There may of course still be some holiday-season distortions in these figures but investors will watch subsequent revisions and the next month’s releases very carefully.

Local currency strength may well be a factor in current industrial weakness, with many manufacturers proclaiming it a major worry in a recent survey done by Reuters.

Still, the Japanese Yen didn’t move far. The recent re-appointment of Haruhiko Kuroda as Governor of the Bank of Japan strongly suggests that only sustainably higher inflation will move the needle on current, ultra-loose monetary policy. Right now inflation is running close to three-year highs but it remains a very long way away from the BoJ’s 2% annualized target rate.

The US Dollar by contrast may only be weeks away from another interest rate rise and bullish Congressional testimony from new Federal Reserve Chair Jerome Powell on Wednesday saw it bid up to two-week highs.

On its daily chart USD/JPY would seem to be building a base of some kind having bounced this year at 15-month lows.

Japanese Yen Weaker After Data Miss, Fed's Powell Remains in Focus

However, the bulls do need to consolidate their position around current levels before they can take another stab at the 108.80 area which failed to hold the downside earlier this month.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter @DavidCottleFX or us the Comments section below to get in touch!

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