Yen unimpressed by strong data

Japanese Machinery
Orders skyrocketed by 8.2% on a month over month basis versus expectations of
only a 2.5% gain but USD/JPY barely budged dropping only 15 points on the news.

Nevertheless the data should provide ample ammunition to the arguments of yen
longs that Japanese economy has truly turned the corner and will now generate
materially better performance in the 4th quarter of this year.

Japanese manufacturers, highly efficient after a
decade of cost cutting and financial restructuring are well on their way to
becoming the predominant global brands in a variety of key industries. Witness
Toyota which may soon overcome General Motors as the largest automobile
manufacturer in the world. The news tonight suggests that Japan may be moving to
a new level in its development. Going forward, the country’s future economic
growth may not be so heavily dependent on US consumer market alone but rather on
its business prowess across the whole globe. Indeed US is now Japan’s second
largest export market having been replaced by China.

Adding to tonight’s good news was our favorite
Japanese economic report – the Eco Watchers survey. This measure of “man in the
street” sentiment from barbers, taxi drivers and waiters, rose to 51.7 from 50.8
projected. The larger than expected gain suggests that Japanese Household
spending, boosted by firm employment data should improve going forward.

Despite the positive results, USD/JPY remains
weighed down by the twin burdens of higher oil and steep carry costs. While we
do not believe that BOJ will move anytime soon to amend its Zero Interest Rate
policy, the prospect of lower oil prices can easily galvanize yen bulls to spur
a rally in the pair. A move below the $60 bbl handle should help USD/JPY to move
back towards the $110 level, especially as more capital continues to pour into
the Nikkei.


Boris Schlossberg serves as Senior Currency
Strategist with Forex Capital Markets in New York, the largest retail forex
market maker in the world. He is a monthly contributor to SFO Magazine with
articles focused on understanding proper risk management, trader psychology and
true market structure. He is also a featured expert at and a frequent
commentator for the Marketwatch From Dow Jones Currency and Bond Report