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Japanese Data Provides No Clear Direction for the Yen

Last updated 1/29/2010 3:23 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Japan produced  a set of mixed economic data on the last trading nigh of the week  showing that the world’s third ;largest economy continues to recover from the worst contraction in the post war era  albeit an uneven pace.  Japanese labor markets improved with the unemployment rate declining to 5.1% versus 5.3% eyed – recording their best reading since November of last year. Japanese labor conditions have  improved consistently since  August of last year when the unemployment rate hit a peak of 5.7%.  

The pickup in labor demand bodes well for the beleaguered Japanese consumer  and resulted in an increase in household spending  which rose 2.1% versus forecast of a 1.5% gain.  On the other hand, deflation remained a nagging problem with Tokyo CPI printing at -2.0% versus -1.8% eyed.

In contrast to the consumer the corporate data deteriorated with Manufacturing PMI dropping to 52.5 from  53.8 the month prior while preliminary Industrial; Production increased only 2.2% versus 2.5% eyed. The rally in the yen is clearly beginning  to weigh on the  Japanese corporate sector and should USD/JPY remain below 90.00 figure for a considerable amount of time it will no doubt have a negative impact on Japanese growth going forward.

USD/JPY rallied in afternoon Asian trade breaking above the 90.00 handle despite the fact that equities prices continued to slide, as month end buying by pension funds drove the flow. Currency traders are watching the three month US LIBOR rates versus those of Japan which are trading at near parity right now at 25 basis points.

If Japanese 3 month LIBOR dips below that of the US the yen will once again prove to be the least expensive G-3 funding currency for the carry trade and could propel USD/JPY higher.  However, given today’s offsetting economic data the directionality of the US/Japan LIBOR spread remains unclear and traders will now look to US data including today’s GDP release and next Friday’s NFP report   as the next key data points that will likely drive the USD/JPY trade.

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Comments (2)

mrod3360

January 29, 2010 at 04:48 AM ET

Hi Boris Where can i find three month US LIBOR rates versus those of Japan

bschlossberg

January 29, 2010 at 05:16 AM ET

Bloomberg

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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.