16 Jan 2014
EUR/JPY declines on signs of Japanese business optimism
FXstreet.com (London) - EUR/JPY has seen some declines from highs on comments from Bank Japan governor Haruhiko Kuroda as well as stronger than expected Japanese machinery orders data.
Signs of improving Japanese business confidence
Japanese machinery orders climbed 9.3 percent in December versus 1.2 percent expectations. While on the face of it the machine orders number is a lower tier data release, it nonetheless suggests that Japanese firms are optimistic and prepared to make capital investments in anticipation of economic growth. However, the numbers may have been inflated by increased orders before the scheduled sales price hike in April which may take the steam out of any momentum and reduce the upside potential for wages.
Diverging balance sheets
EUR/JPY saw a bullish trend though the fourth quarter of 2013 and running into this year, largely on their relative balance sheet positions. While both are battling deflationary pressures, partly in the form of imported price declines on currency strength, the respective central banks are pushing from opposing directions. While both have a two percent inflation target, the European Central Bank's balance sheet is in a period of contraction. This contrasts sharply with the aggressive bond buying of the Bank of Japan, currently running at JPY7 trillion a month.
Tax hikes could slow momentum
The April tax hike could be crucial for this divergence. Should the Japanese economy show a slow down in momentum, bets would be raised on the BoJ increasing the size of its asset purchases. The next BoJ policy meeting will be held on 22 January and will be scrutinised for clues as to the central bank’s readiness to expand its bond buying.
In addition, this week's trade balance numbers have highlighted the diverging directions of travel for the respective economies. On Tuesday, Japanese data showed a record trade deficit running at JPY592.1bn, driven wider by a weak yen pushing up import prices. By contrast, Eurozone data released this morning showed that the economic area is running a EUR17.1bn surplus.
EUR/JPY is currently trading at JPY142.5905, falling from a session high of JPY142.9075 and remains in a slight bearish trend. However, the pair remains up on the opening of JPY142.2581.
Signs of improving Japanese business confidence
Japanese machinery orders climbed 9.3 percent in December versus 1.2 percent expectations. While on the face of it the machine orders number is a lower tier data release, it nonetheless suggests that Japanese firms are optimistic and prepared to make capital investments in anticipation of economic growth. However, the numbers may have been inflated by increased orders before the scheduled sales price hike in April which may take the steam out of any momentum and reduce the upside potential for wages.
Diverging balance sheets
EUR/JPY saw a bullish trend though the fourth quarter of 2013 and running into this year, largely on their relative balance sheet positions. While both are battling deflationary pressures, partly in the form of imported price declines on currency strength, the respective central banks are pushing from opposing directions. While both have a two percent inflation target, the European Central Bank's balance sheet is in a period of contraction. This contrasts sharply with the aggressive bond buying of the Bank of Japan, currently running at JPY7 trillion a month.
Tax hikes could slow momentum
The April tax hike could be crucial for this divergence. Should the Japanese economy show a slow down in momentum, bets would be raised on the BoJ increasing the size of its asset purchases. The next BoJ policy meeting will be held on 22 January and will be scrutinised for clues as to the central bank’s readiness to expand its bond buying.
In addition, this week's trade balance numbers have highlighted the diverging directions of travel for the respective economies. On Tuesday, Japanese data showed a record trade deficit running at JPY592.1bn, driven wider by a weak yen pushing up import prices. By contrast, Eurozone data released this morning showed that the economic area is running a EUR17.1bn surplus.
EUR/JPY is currently trading at JPY142.5905, falling from a session high of JPY142.9075 and remains in a slight bearish trend. However, the pair remains up on the opening of JPY142.2581.