More soft Japanese economic data sinks the yen

USDJPY jumped through 118.00 on the back of soft Japanese economic indicators and falling oil prices that support the case for even more monetary easing from the Bank of Japan in the second half of 2015. The market already had its doubts before the release of today’s data about the ability of the BoJ’s fresh stimulus to boost inflation to the bank’s 2% target, and October’s inflation and other economic figures have likely turned even more optimists into cynics. Admittedly, today’s figures focus on a period prior to the BoJ’s new bout of easing, but they still highlight the lack of activity at the ground level in Japan and the challenges faced by Kuroda and his cohorts in reaching their price target.

Overall consumer prices rose 2.9% y/y, missing an expected rise of 3.0% y/y. More importantly, core CPI growth fell to 2.9% y/y from 3.0% y/y previously. This is the third straight month of declines which puts real core inflation around 0.9% (the BoJ estimates that the increase in the VAT in April adds around 2% to core CPI after April).

Inflation

Source: FOREX.com, Bloomberg

Falling oil prices and more soft economic data help to weaken the yen

Falling oil prices may further complicate the BoJ’s ability to stoke inflation. Japan relies heavily on imported energy, thus the softening price of black gold is expected to weigh heavily on this aspect of tradables inflation.

Furthermore, other economic data out today reinforce the soft inflation figures and cast even more doubt about the health of domestic demand in the near-term. Retail sales unexpectedly dropped 1.4% m/m in October (expected -0.5% m/m). The only mildly bit of encouraging economic data was a surprise 0.2% m/m jump in industrial production last month.

USDJPY

USDJPY is back above 118.00 and looking strong. It’s running into some mild resistance around 118.30 but it wouldn’t take much to push through this level. The USD is on the front foot today and when combined with the recent weakness in oil prices and the market’s attempts to price in the possibility of further easing from the BoJ the path of least resistance for USDJPY appears to be higher, at least for the moment. A bullish crossover in 4-hr MACD supports this notion.

Source: FOREX.com

Source: FOREX.com, Bloomberg

Falling oil prices and more soft economic data help to weaken the yen

Falling oil prices may further complicate the BoJ’s ability to stoke inflation. Japan relies heavily on imported energy, thus the softening price of black gold is expected to weigh heavily on this aspect of tradables inflation.

Furthermore, other economic data out today reinforce the soft inflation figures and cast even more doubt about the health of domestic demand in the near-term. Retail sales unexpectedly dropped 1.4% m/m in October (expected -0.5% m/m). The only mildly bit of encouraging economic data was a surprise 0.2% m/m jump in industrial production last month.

USDJPY

USDJPY is back above 118.00 and looking strong. It’s running into some mild resistance around 118.30 but it wouldn’t take much to push through this level. The USD is on the front foot today and when combined with the recent weakness in oil prices and the market’s attempts to price in the possibility of further easing from the BoJ the path of least resistance for USDJPY appears to be higher, at least for the moment. A bullish crossover in 4-hr MACD supports this notion.

Source: FOREX.com