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Yen Weakens on Weak Japanese Data

David Becker
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The yen continued to weaken against most major currencies on Tuesday and tested resistance levels against the greenback. Monday’s stronger than expected ISM manufacturing data drove US 10-year yields back above the 2.80% level as investors started to speculate on whether the Fed would consider tapering given the stronger than expected economic data. Japanese data continue to remain weak, driving the interest rate differential in favor of the dollar.

Economics and analysts seem to have doubts that the Japanese central bank will achieve the 2% inflation target in the next fiscal year. With this in minds the overwhelming majority expect the Bank of Japan to take additional measures to stimulate growth and stoke inflation.

Monday disappointing third quarter capital expenditures report out of Japan has been followed by disappointing wage data on Tuesday. Cash earnings rose 0.1% in October and the September number was revised to -0.2% from 0.1%. While over-time pay rose, the regular wages continued to fall and in October were 0.4% below year ago levels. They have been falling on a year-over-year basis for almost 1.5 years.

Also on Monday, the Institute of Supply management released November’s purchasing manager’s index. The 57.3 print was the highest since April of 2011, and reflects strong gains in new orders and employment.

The USDJPY surged higher testing the 103 level before traders took profits ahead of the November highs.

Momentum on the currency pair is strong with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory. The currency pair is trading above the 20-day and 50-day moving average reflecting a robust uptrend.

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