Why Japan is Swine Flu's Greatest Victim

Last updated 4/28/2009 1:01 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Japan’s retail sales fell for a seventh consecutive month in March as weakening labor market prompted households to cut spending in a clear sign that Japan’s economy is seeing no evidence of a rebound in consumer demand. Sales declined by 3.9% earlier which was actually a bit better than the market consensus of a 4.7% drop, but despite the slightly better than forecast numbers, today’s retails sales data confirms the fact the world’s second largest economy remains mired in the worst economic slump in the post war era. Yesterday, the Japanese government forecast that the economy will shrink by 3.3% in 2009.

The sharp appreciation in the value of the yen has exacerbated the economic contraction in the land of the rising sun and the current market focus on the swine flu epidemic is only making the made the situation worse. As fear continues to dominate trade in the currency market, yen has risen to a six week high against euro and a four week high against the greenback.

The latest tide of risk aversion triggered by the swine flu epidemic hurts the Japan in two ways. First, the higher value of the yen squeezes profit margins for the export driven Japanese economy. Secondly, if the swine flu crisis persists for an extended period of time it may further dampen global trade reducing the country’s income.

Today, The World Health Organization, acknowledged the growing threat of swine flu, and raised its global pandemic alert from 3 to 4, saying the disease is no longer containable. Meanwhile USD/JPY continues to trade lower in afternoon Asian dealing breaking the 9600 figure to the downside and could now target the 9500 handle as fears continue to resonate through the currency market. Thus, while Japan has so far avoided any cases of infection from the swine flu epidemic, the country’s economy may wind up being the pandemic’s biggest victim as yen strength strangles any prospect for growth.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.