They Talked This Market Down
The yen has been in rally mode throughout August as the Japanese
repatriate funds to comply with new
accounting rules that require firms to mark-to-market (losing) assets. Firms
with invested funds overseas — and especially in US markets — have been repatriating yen and driving demand
for the monetary unit and the yen’s price higher. This has been going on
despite a barrage of evidence that the world’s second-largest economy is a
sinking ship: unemployment is at a record high, the Nikkei 225 stock average
is at a 16-year low, and economic growth and manufacturing is slumping into
the negative column.
Verifying the dire state of economic affairs, a report out today said
Japan’s economy is declining at
an annualized pace of almost 5%. With tight-fisted Japanese
consumers doing ever-less to stimulate domestic demand, a strong yen is the
last thing the export-dependent country needs as it struggles to regain
economic health.
And Tokyo has few options but to export
its way out of the economic slump. Interest rates are within a fraction of
zero and have been for nearly a year, to no avail. With rates so low, the
central bank has little leeway to maneuver to stimulate the economy. Until
now, the Bank Of Japan has said it will not flood the country with yen, and
government spending has been an ineffectual and costly as a means of
kick-starting growth. The country has historically exported its way to
wealth, and a strong yen will only make that avenue all the more
difficult.
So, finance officials came out today to talk down the yen. Statements from two of Japan’s top financial officials demonstrates the
government’s weak-yen policy preference. Zembei Mizoguchi, an official of
the Ministry of Finance’s international bureau, told Dow Jones news service
that the yen’s rise against the dollar has been “excessive.” And
Japan’s Finance Minister, Masajuro Shiokawa, said he favors the Bank of
Japan pumping more money into the system to drive the yen lower.
This is Japan jawboning the yen lower, the cheapest alternative. It also
represents a clearer weak-yen policy stance from Tokyo and increases the chances of
further downside in the currency. The September Japanese yen
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gapped lower overnight and just touched the gap left on August 15. Here,
the mid-August highs in the .8280 area provided support, an area that
also corresponds with the 38.2% retracement of the summer run.
Also of note in the currencies in a very constructive sign that could take the contract to new highs in
coming days,
British pounds
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just shy of last Thursday’s six-month high. Pounds were on the Momentum-5
List for Tuesday.
As pointed out in the Mid-day Futures Alert, December cotton
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intraday double tops yesterday and descended out of
the pattern early in today’s session. Cotton then consolidated on its lows of the day and
“appeared to
have more downside work to do out of both its double top and a Slim
Jim/bearish intraday flag formation.” Cotton, another market that has
shown downside momentum due to its standing on the
Implosion-5 List, broke down out of the pattern, at 39.35, tagged
yesterday’s lows in the 38.94 area and then erased half of the session’s losses
to close down .64 at 39.58.
In the energies, October crude oil
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and
heating oil
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Pullback From Highs
setups. Along with unleaded gasoline
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all three contracts are working on flag patterns that might be in jeopardy
due to OPEC’s recent announcement that it would not cut back on
output.
From the
Implosion-5 List,
December cocoa
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the July lows in the 885 area. This market made good on an Off The Blocks
short in the process, a setup that has worked out in four of the past five
sessions. Cocoa recouped losses in profit taking at the July lows and
closed down 12 at 898.