The Yen Fights Back

• Yen strengthens on the BoJ’s market disappointments

The Yen fought back in today’s session as it posted major gains with the USDJPY is currently trading at 104.30. Data released in Japan like the SPPI, a fundamental indicator that measures the corporate inflation, reported a small gain of 0.2%, which was well within analysts estimations. Elsewhere in the US, Consumer confidence and housing numbers hit the wires, with the US set to release durable goods orders and the FOMC policy statement with the CB Consumer Confidence expected to rise to 560,000. Positive reports were reflected in the US after they posted 2 major events on Tuesday; new home sales soared to 592,000 in June, and CB Consumer Confidence dropped to 97.3 points in July, even if lower than the value it reported in June it was still an above average release.

The manufacturing sector was not left out as Richmond Manufacturing Index rose showing a +10 points reading as opposed to the analyst forecast of -4 points. The yen currently displays a lot of volatility, as the markets continue to anticipate stimulus measures from the Japanese authorities and the Bank of Japan. The BoJ has come under immense pressure to further promote its easing steps, with many wondering if it is still financially capable of more stimulus, with the economy’s present war with deflation and interest rates already cut to 0. Options that still remain available to the BoJ are expanding quality or quantity easing. The Japanese Prime Minister Shinzo Abe is currently expected to release new fiscal measures in order to spark the dull economy. The market is currently anticipating stimulus going as high as 20 trillion Japanese yen, meanwhile a Nikkei report on Tuesday showed that the government would unveil an immediate fiscal stimulus of an estimated 6 trillion Japanese yen which would be allocated to the supplementary budget over the next few years.

The USDJPY today slipped by almost to figures in an uncontrollably volatile Asian trading session, after the market was hugely let down by the size of the expected stimulus package coming from Japanese as hinted in the Nikkei report. Rumours from last week surfaced again that the Japanese authorities could go as far as shedding 20 to 30 trillion Japanese yen, but the report released today have strongly opposed those numbers, reflecting much more modest sums and shocking stimulus hopefuls.

Sending a shock wave through the currency markets and causing a USDJPY selling spree, as many of the bull bets placed over time in anticipation of a hefty stimulus package were closed today. The pair is now closing in on the 104.00 and stands in anticipation of 2 fundamentally important events as the week moves forward. The market will tomorrow see the results of the FOMC statement which is currently not expected to produce any policy changes but will likely show an increasingly hawkish view of the Fed.

Fed policy makers have shown a lot of restraint to increase rates if inflation is shown to not point skywards, and with most of the data they have to work with coming from June not fully assessing the Brexit vote that took place on June 23, Fed members will most likely want to analyse August and September releases before making any decisions.