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Strong trade data pushes Yen higher, Japan's surplus highest in six-years; Yen remains cheapest of all the majors on a real basis; EUR falls on weaker PMI data

Currencies
Strong trade data pushes Yen higher, Japan's surplus highest in six-years; Yen remains cheapest of all the majors on a real basis; EUR falls on weaker PMI data

By Jason Wong

It was a deadly quiet start to the trading week, with little to report other than a strengthening of the Yen.

The Yen has strengthened 0.9% against the USD, taking USD/JPY towards the 109 mark. The move down seemed to coincide with much stronger than expected trade data, with the surplus rising to its highest level in six years, making a mockery of Japanese official’s pleas for a weaker yen. 

On a real exchange rate basis, the yen remains the cheapest currencies of the majors and has been for some time, despite its strong appreciation this year. The market knows this and has been happy buying yen for much of the year, despite the BoJ pumping up its monetary base. The strength of the yen since yesterday afternoon unwinds much of the weakness seen last week.

Elsewhere, one needs a magnifying glass to see any point-to-point currency changes versus the USD from the previous close, with the majors all within 0.1% – that includes NZD, AUD, CHF, CAD, EUR and GBP.

The NZD is 0.6765, unchanged from the weekend close. There was a drift higher over the local trading session, but the gain to a peak of just over the 0.68 mark wasn’t sustained.

NZD/AUD traded as high as 0.9415, a 3-month high, but has settled back down to around 0.9365, little changed from the open.

EUR dipped after the release of Markit PMI data that was a touch weaker than expected. Markit said that the improvement in Germany and France PMIs was offset by a further cooling of the rate of expansion outside of the big-two nations to a 17-month low.  However, the fall in EUR all the way down to 1.1190 wasn’t sustained and is now back at 1.1220.

It looks like we’ll have another quiet trading day ahead, with little to note on the economic calendar. It seems that the rebound in the USD from its low early in the month (a circa 4% gain on the major currency TWI index) has run its course, for now. It could well be that the tight ranges seen overnight are sustained for the rest of the week.

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1 Comments

On a real exchange rate basis, the yen remains the cheapest currencies of the majors and has been for some time, despite its strong appreciation this year. The market knows this and has been happy buying yen for much of the year, despite the BoJ pumping up its monetary base. The strength of the yen since yesterday afternoon unwinds much of the weakness seen last week.

The reason for yen remaining the cheapest is plain to see.

So thoroughly destroyed is Japan’s economy that some of the numbers it produces are beyond comprehension, just staggering in any meaningful context. For example, Japan’s real GDP (SAAR) for Q1 2016 was ¥530 trillion (chained 2005). That compared to ¥447 trillion in Q1 1994. Over two decades and two additional years the Japanese economy has grown by a grand total of 18.5%. On straight arithmetic alone it doesn’t work out to 1% per year let alone on a compounded basis. Read more

Recent yen strength can be attributed to factors related to foreign currency funding costs in response to a global "dollar" shortage. Read more

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