Japan intervenes for the first time since 2003 as it tires of Chinese shenanigans and the march to new 15-year lows in USDJPY. The BoJ/MoF appears to have won the first round, but will it be able to maintain JPY weakness beyond the shortest term?
JPY Intervention
|Verbal intervention finally shifted to real intervention in Japan, as the BoJ stepped in and sold the JPY overnight in Asian trading after the political nervousness on the DPJ vote saw the USDJPY scratching down at new 15-year lows below 83 (note that the weak USD is at least partially to blame - EURJPY, after all, had actually rallied considerably ahead of the intervention). The government likely felt rather justified in making its move here owing to the recent interest China has shown in buying the yen, rather adding insult to injury since China has done so little to allow its essentially still dollar-pegged currency to appreciate in line with market fundamentals.
|Verbal intervention finally shifted to real intervention in Japan, as the BoJ stepped in and sold the JPY overnight in Asian trading after the political nervousness on the DPJ vote saw the USDJPY scratching down at new 15-year lows below 83 (note that the weak USD is at least partially to blame - EURJPY, after all, had actually rallied considerably ahead of the intervention). The government likely felt rather justified in making its move here owing to the recent interest China has shown in buying the yen, rather adding insult to injury since China has done so little to allow its essentially still dollar-pegged currency to appreciate in line with market fundamentals.
The new line in the sand by popular consensus is perhaps 85 in USDJPY. The BoJ's move overnight saw all kinds of fallout, as the CHF also weakened sharply in Asian hours and the USD got a boost in most crosses on all of the USDJPY buying. EURJPY shot higher to test interesting levels (see chart below). In an effort to perhaps bolster the seriousness of the government's intentions to keep the JPY from plowing back higher, an MoF official was cited saying that intervention can certainly also take place during New York hours. For the short term, the bank may try for a shock and awe strategy and pushing USDJPY 88.00 to 90.00 before pulling away. They may not have a terribly tough time doing this considering the fact that the speculative market had already gotten quite long the JPY and judging from the initial success of the move here. A more modest target for traders could be the Ichimoku daily level currently around 86.65.
So what to make of the future for the JPY? On the one hand, Japan could have a fight on its hands if interest rate spreads begin to march lower and lower as they have in the recent past, making the JPY look relatively less unattractive. We have endlessly discussed that correlation of JPY and rates in the past. On the other hand, a strong JPY increasingly wreaks havoc on the Japanese economy, eventually become a self-resolving situation, one would think. We also have to consider the angle of foreign investors and whether they want to send money to a country where the central bank is intervening and that has the world's heaviest debt load. We'll keep an eye on sovereign debt risks on this issue as time goes on as well.
Chart: EURJPY
Very interesting levels in EURJPY were tested overnight on the back of the BoJ intervention. The main level in focus here is the Ichimoku daily cloud level at close to 111.00. Let's see where the market settles today relative to that level - a significant break and close above could mean that it becomes support. Other support levels lower for now are the psychological 110.00 area or perhaps down to the previous high around 109.60.
Very interesting levels in EURJPY were tested overnight on the back of the BoJ intervention. The main level in focus here is the Ichimoku daily cloud level at close to 111.00. Let's see where the market settles today relative to that level - a significant break and close above could mean that it becomes support. Other support levels lower for now are the psychological 110.00 area or perhaps down to the previous high around 109.60.
US Data
The Empire manufacturing number was weaker than expected, though the internals don't paint a particularly ugly picture, since New Orders rose back into positive territory (4.3 vs. -2.7 in Aug.) and the Number of Employees component remained relatively strong at +14.93. The bad news was limited to a very weak Delivery Time component, whatever that is supposed to indicate... Industrial Production data was weak since the strong July number was revised heavily downward.
The Empire manufacturing number was weaker than expected, though the internals don't paint a particularly ugly picture, since New Orders rose back into positive territory (4.3 vs. -2.7 in Aug.) and the Number of Employees component remained relatively strong at +14.93. The bad news was limited to a very weak Delivery Time component, whatever that is supposed to indicate... Industrial Production data was weak since the strong July number was revised heavily downward.
US Politics
A lot of noise on the US political scene today as Tea Party candidates took key Republican primaries against traditional Republican candidates. The Delaware Republican Senate primary was particularly of note as the Tea Party candidate there took the election, but is perhaps considered too radical to win versus the Democratic candidate. This is interesting and could affect the Republicans chances of and one wonders if the Tea Party has swung so far to the right in some cases, thus provoking a backlash in the key independent swing voters. Time will tell - but the Tea Party's star continues to rise - and the election will tell us whether the party has enough mass appeal to carry majorities in the full electorate, not just within the Republican party.
A lot of noise on the US political scene today as Tea Party candidates took key Republican primaries against traditional Republican candidates. The Delaware Republican Senate primary was particularly of note as the Tea Party candidate there took the election, but is perhaps considered too radical to win versus the Democratic candidate. This is interesting and could affect the Republicans chances of and one wonders if the Tea Party has swung so far to the right in some cases, thus provoking a backlash in the key independent swing voters. Time will tell - but the Tea Party's star continues to rise - and the election will tell us whether the party has enough mass appeal to carry majorities in the full electorate, not just within the Republican party.
Looking ahead - RBNZ
All eyes on the JPY crosses to see how the BoJ's efforts are faring. There are other big fish to fry here, however, with that key resistance in the US S&P500 still in place. The RBNZ is up just after the US equity close today. We have discussed that the interest rate spreads suggest NZDUSD is overdone here and any dovish guidance from the RBNZ (should be overwhelming consensus considering fallout from the Christchurch earthquake and the recent large NZ bank that went under.) could see a sharp sell-off. Any downside argument could require that risk appetite eases off at least a little bit here, however, since the greenback only seems to thrive lately when the worry warts have the upper hand. Watch out for the NZ surveys out shortly after the bank's decision as well.
All eyes on the JPY crosses to see how the BoJ's efforts are faring. There are other big fish to fry here, however, with that key resistance in the US S&P500 still in place. The RBNZ is up just after the US equity close today. We have discussed that the interest rate spreads suggest NZDUSD is overdone here and any dovish guidance from the RBNZ (should be overwhelming consensus considering fallout from the Christchurch earthquake and the recent large NZ bank that went under.) could see a sharp sell-off. Any downside argument could require that risk appetite eases off at least a little bit here, however, since the greenback only seems to thrive lately when the worry warts have the upper hand. Watch out for the NZ surveys out shortly after the bank's decision as well.
As we go to press, US treasuries are rallying smartly again - making life more difficult for the BoJ/MoF. Let's see how determined they are...
Economic Data Highlights
- US Weekly ABC Consumer Confidence out unchanged at -43
- New Zealand Aug. Card Spending dropped -0.2% MoM
- Australia Sep. Westpac Consumer Confidence out at 113.2 vs. 119.2 in Aug.
- Australia Q2 Dwelling Starts out at +0.8% QoQ vs. +4.5% expected and +9.1% in Q1
- Norway Aug. Trade Balance out at 20.7B vs. 28.3B in Jul.
- U Aug. Jobless Claims Change rose 2.3k vs. -3.0k expected and -1.0k in Jul.
- UK Jul. Average Weekly Earnings ex Bonus out at +1.8% 3M/YoY vs. 1.7% expected
- EuroZone Aug. Core CPI out at +1.0% YoY vs. +0.9% expected and 1.0% in Jul.
- Switzerland Sep. ZEW Survey out at -5.1 vs. +9.1 in Aug.
- Canada Jul. Manufacturing Sales fell -0.9% MoM vs. +0.2% expected
- US Aug. Import Price Index rose +0.6% MoM and +4.1% YoY vs. +0.3%/+3.8% expected, respectively
- US Sep. Empire Manufacturing out at 4.14 vs. 8.0 expected and 7.1 in Aug.
- US Aug. Industrial Production rose +0.2% MoM as expected and Jul. number revised down to +0.6% from +1.0%
- US Aug. Capacity Utilization out at 74.7% vs. 75.0% expected and 74.6% in Jul.
Upcoming Economic Calendar Highlights
- US Weekly DOE Crude Oil and Product Inventories (1430)
- New Zealand RBNZ Official Cash Target (2100)
- New Zealand Q3 Westpac Consumer Confidence (2200)
- New Zealand Aug. Business NZ PMI (2230)
- Australia Q3 Westpac ACCI Industrial Survey (0100)
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