Tags: invest | economy | intervention | currency

Japan Sends Signals of Trouble on Horizon

Japan Sends Signals of Trouble on Horizon
(Dollar Photo Club)

Monday, 02 May 2016 09:07 AM Current | Bio | Archive

Last week’s FOMC decision of doing “nothing” has been “supportive” for various markets like the emerging markets, commodities and so-on, but not for everybody.

When we look at the equity markets in Japan as well as the Japanese yen, we see signs that “trouble is brewing.”

The Japanese Manufacturing PMI survey states in its press release: “Latest survey data signaled a marked deterioration in operating conditions at Japanese manufacturers, partly a consequence of the two earthquakes which struck one of Japan’s key manufacturing regions. Output decreased at the quickest rate in two years, underpinned by the most marked fall in new orders since December 2012. A slump in international demand was one of the primary factors behind the fall in total new orders, with new export orders declining at the sharpest rate in over three years.”

At the same time that the Japanese economy is in serious problems, the Japanese yen goes from stronger to stronger and just hit an 18-month high against the dollar.

From an investor’s standpoint, this is a complex situation because “something” will have to change. The Japanese Ministry of Finance will have to do something to counteract the continuously rising strength of the Japanese yen after the Bank of Japan didn't do anything during its meeting last week to stem the ongoing rise of the yen.

All that said it is also an undeniable fact Japan doesn’t seem to find a durable solution to its problems and once again today's strength of the yen represents a huge handicap for the deteriorating Japanese manufacturing sector and its “contracting” export orders.

Over more or less a decade, in Japan we have practically seen it all:

  • About a decade ago, there was the “stealth” intervention in order to slow the upward appreciation of the yen and that resulted in the U.S. bringing charges in 2007 that Tokyo was manipulating its exchange rate in order to gain unfair advantage in world trade.
  • On March 11, 2011 when a magnitude 9.0 (Mw) megathrust earthquake and tsunami hit Japan’s Pacific coast of Tōhoku we got a sudden rise of 5.1 percent of the yen falling from 82.98 JPY/USD to 78.74 JPY/USD in a single trading session and then in an extremely rapid interventions the G-7 finance ministers and central bank governors brought the yen back down.

All this means that interventions do happen and when they happen markets get distorted, in part because they are mostly taken by surprise.

Does  this mean this will happen this time around?

Nobody, or at least very few, know something about it.

If the Japanese Ministry of Finance wants to surprise the markets, this time around “could,” which doesn’t mean “will” be a good moment in time to do something as we have in Japan the “Golden Week.” For this week only today and Friday are normal working days.

This week has everything for becoming an interesting one as we have also on Friday the April employment situation numbers.

It could be helpful for investors also taking notice and completely opposite to what markets are betting on for the moment, currency custodial flow data as observed in New York show fresh outflows from the euro that have began to emerge as from the start of March onward and during recent weeks we have also seen a fresh reversal to inflows in the pattern of dollar flows.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

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All this means interventions do happen and when they happen markets get distorted, in part because they are mostly taken by surprise.
invest, economy, intervention, currency
Monday, 02 May 2016 09:07 AM
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