Japan ready to intervene

Japanese monthly data released today suggest that a post-quake recovery is fading. Even though the unemployment rate surprisingly fell from 4,7% to 4,3%, industrial data – more relevant when judging economic momentum – was clearly disappointing. The industrial output in August grew by 0,8% m/m while the market expected nearly twice as much and the data for July was corrected downwards (from +0,6% to 0,4%). The PMI for September is at 49,3 pts., notably lower than in August (51,9 pts.) and for the first time below the 50 mark since April.

This softening is a combined effect of a global slowdown and a strong yen. Japanese authorities cannot do much about the former but are trying to fight the latter. The MoF said that the intervention fund will be boosted by 15 trillion JPY – that is by nearly 50% and dealers’ positions will be monitored for two additional months – a step taken to discourage speculation.

Interestingly, there was no reaction to this move on the market nor to the data. What might be more telling, the pair stayed close to the lows even as the global sentiment improved somewhat this week. That suggest the Japanese might be forced to use this enriched war chest in order to have any success. However, past interventions suggest such success is a short-lived one. Interventions aside, a consolidation within a downward trend suggest further declines (especially should sentiment become sour again). Key short-term levels are 75,95 (the all time low) and 77,77 (a resistance).  

Solid data, sober reaction

The US data released yesterday brought a positive surprise – especially in case of initial claims. The number fell by as much as 39k (from a reading revised upwards by 5k)  to 391k – the lowest since early April. While the data is definitely a good news it is still uncertain if the reading is not a one-off outlier. The four weeks average fell as well but at 417k it remains high – it was above 400k each week since the mid-April.

The market reaction was sober – equities reacted positively at first but the investors took profits, probably realizing that the good news for the week (acceptance of the EFSF in Germany, better US data) is probably over and the future – even a short-term one remains highly uncertain. Friday will bring some more US data but in fact the attention may drift again to the issue of the Greek (more or less controlled) default.

Przemysław Kwiecień PhD, Chief Economist

Investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. None of the published information can be treated as a recommendation, disposition, promise, or guarantee that the investor will achieve a profit or will minimize risk using the information published on this website. Transactions including investment instruments, especially derivatives using leverage, are in its nature speculative and can provide both profits and losses that can exceed the initial deposit engaged by the investor. more