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USD/JPY Below 96.00 as Repatriation Drives Yen Higher

Last updated 3/12/2009 5:46 AM ET (GMT -5) 0 Comments - Add your comment

Overnight Eco

JPY Final GDP -3.2% better than -3.5% forecast
AUD MI Inflation Expectations 2.2%
AUD Employment Change 1.8K vs. -20K expected
AUD Unemployment Rate 5.2% worse tahn 5.0% eyed
EUR French CPI hotter at 0.4%
GBP Consumer Inflation Expectations n/a
CB Leading Index n/a
EUR German Industrial Production n/a

Event Risk on Tap

USD Retail Sales expected at -0.5%
USD Unemployment Claims expected at 640K
CHF SNB Interest Rate Decision

Price Action

USD/JPY breaks 9600 as rapatriation drives yen rally
AUD/USD loses 6500 after employment news fails to inspire
GBP/USD back to 1.3700 as East European supply weighs all night long
EUR/USD trades back down to 1.2750 on EUR/JPY sell flows

Yen was the star performer in overnight trade gaining more than three big figures from yesterday on repatriation flows ahead of the Japanese fiscal year end. After trading as high as 99.12 just two days ago USD/JPY fell to a low of 95.67 in early European session on rumors of large bond redemptions that drove EUR/JPY lower by nearly 300 points and dragged EUR/USD down all night long.

We have argued that despite the woeful state of the Japanese economy USD/JPY would have difficulty clearing the 100 barrier hurdle, precisely because of repatriation flows. With Nikkei resting near the 7000 level, and a dividend yield on the index near 2.5% Japanese equities could prove to be one of the better bargains in global capital markets this year. In a G10 world quickly moving towards Zero Interest Rate Policy, the relatively high dividend yield on stocks provides a very compelling reason for Japanese investors to repatriate their capital back home. After years of yen negative carry trade flows the currency may finally start to benefit from domestic demand.

In other Asia Pacific news Australian unemployment hit 4 year highs, but the country’s economy continued to generate jobs producing 1.8K new positions versus expectations of -20K loss. Still the markets continue to worry about the prospect of further slowdown in Chinese demand. As we wrote, “Up to now, Australia has been able to avoid a recession in large part due to the fact that it remains the primary supplier of commodities to China. However, yesterday's Chinese trade data, which showed a massive contraction in demand for both exports and imports, augurs very poorly for future Australian growth. Indeed if China is forced to curtail its purchases of raw materials as the year progresses, Australian economy will suffer greatly and the unemployment figures could begin to skyrocket.”

Finally in North America today focus will turn to US Retail Sales Report with markets looking for -0.5% drop versus 1.0% gain last period. There is a chance however that the number could surprise to the upside given the better than expected data from the weekly shopping surveys. Still, unless the news proves to a major positive surprise the impact on FX should be relatively limited but could help risk appetite improve as the day progresses. Equity markets are looking for any signs stabilization and if consumer demand perks up even a bit USD/JPY could rebound above 9600 reversing some of the overnight flows.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	12:30	8:30	USD Retail Sales	-0.5%	1.0%
USD	12:30	8:30	USD Unemployment Claims	640K	639K
CHF	13:00	9:00	CHF SNB Interest Rate Decision		0.50%

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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.

USD/JPY Below 96.00 as Repatriation Drives Yen Higher

Boris Schlossberg

Director of Currency Research, GFT