FXStreet (Barcelona) – Greg Gibbs, FX Trading Strategist at RBS notes that Japanese data is showing traction on beating dis-inflation and while yields remain supportive of a weaker JPY, the fundamentals are not clearly negative for the Yen.
Key Quotes
“The market is not as short JPY as it appears to have been in EUR, as we discussed in yesterday’s report. After a long period of consolidation in USD/JPY it appears there is more power for the market to sell JPY on the basis of improving USD fundamentals and expectations for prolonged BoJ QE.”
“Nevertheless, we need to be wary of traction in Japan towards achieving its inflation goals, perhaps even more so than in the Eurozone. The market remains dismissive of improving economic trends in Japan, but they exist. Labour cash earnings rose 0.9%y/y in April, above 0.3% expected. Regular contracted earnings rose 0.6%y/y in April, up from 0.2%y/y in March, to the equal the previous high in at least 15 years made in 2005.”
“Commentators have often noted that real earnings have not been rising in Japan (largely because of the jump in the consumption tax hike in April-2014). However, with that hike more than a year ago, wages have now risen in real terns for the first time in two years (by 0.1%y/y in April).”
“The Japanese labour market is already tight with the jobs-to-applicants ratio reported last week at 1.17, a high since 1992, a time when the economy was coming off its bubble induced highs in the early 1990s. As such, BoJ’s Kuroda can claim he has deflation on the run and his goal of 2% inflation is within sight.”
“On Monday capital expenditure for Q1 was reported to have jumped by 7.3%y/y in Q1, well above -0.2% expected. Japanese economists now expect a substantial upward revision in the Q1 GDP report that received mixed reviews when released on 20-May (up 2.4% saar q/q). Various reports point to expectations of 3.1 to 3.4% when revised.”
“The composite PMI reported for Japan today was 51.6 in May, a high since Jan-15, not booming, but consistent with the domestic economy displaying modest growth, and certainly stronger than many other Asian economies.”
“Export growth was 8.0%y/y in April, compared to negative growth in most other Asian economies, and the Japanese trade balance has improved sharply over the last year aided by the lower energy import bill. The trade balance was reported near balance in recent months, placing the current account in a surplus over 4% of GDP, given the large income surplus.”
“As such, while the BoJ still has considerable work to do to over-come low inflation expectations, and negative real yields create a case for a weaker JPY, the fundamental trends are not clearly negative for the JPY. As such we need to be careful with dogmatic views in JPY.”
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