The market received surprising trade data from Japan on Monday. What had been expected as a ¥43 billion trade surplus for the month of May was actually a deficit of ¥203 billion. April’s surplus had been ¥480 billion.
The data came as a surprise to many given that the Japanese economy had seemingly been picking up steam in recent months.
Japan’s currency, the yen, is considered the FX world’s premier safe haven in part because of the country’s consistent ability to run a trade surplus – a feature which was most evident between the mid-1980s and 2008 and which makes Japan stand out from other developed economies such as the US, UK and Euro area.
Although a single month’s worth of trade data is unlikely to be taken too seriously by financial analysts, the data does add to what was already bearish sentiment on the yen; sentiment which has been driven by a reduction in risk aversion and a divergence in the expectations for future monetary policy between Japan and other developed nations. On the latter point, the Bank of Japan (BoJ) this month reaffirmed its ultra-stimulative policy, something sure to dissuade investors from holding yen given the backdrop of US rate hikes, a more hawkish than expected Bank of England, expectations for ECB QE tapering and surging inflation in countries like New Zealand.
As a consequence of Monday’s data, the Japanese yen fell across the board. Some of the more significant exchange rate moves are discussed below.
The Aussie has been resurgent following the aforementioned decrease in risk aversion and much better than expected Australian employment data last week. Data released by the Australian Bureau of Statistics on Thursday showed that the country added 42,000 new jobs in the month of May, far better than the market estimate for just 10,000.
The yen lost around 0.5% in the twenty-four hours following the disappointing trade numbers and has now lost a total of 3.7% against the Australian dollar since June 6th. As of writing, shortly after 05:45 GMT on Tuesday, the yen sits close to its session lows versus Australia’s currency, with ¥100 now buying just A$1.178 (AUD/JPY 84.88). This marks an eleven-week low in the exchange rate.
Last week, US banking giant Bank of America Merrill Lynch said that their preferred yen position was to be short JPY/NZD. In other words, the bank are predicting that the yen will fall most against the New Zealand dollar – a currency which had been the best performing FX major in May and throughout early June.
The yen has lost 0.4% in the past twenty-four hours against the kiwi, adding to losses since mid-May of nearly 6%. New Zealand’s currency has been supported by improving trade, strength in dairy prices, high inflation and record highs in US stocks (indicative of receding market risk). As of writing, the JPY/NZD exchange rate also sits on its session lows. ¥100 now buys just N$1.235 (NZD/JPY 80.97), marking a sixteen-week low.
Against the Thai baht, the yen also fell by around 0.4% on Monday, but unlike the Australian and New Zealand dollar currencies, against the baht the yen has not been in a clear recent downtrend. It has, in fact, been in an extended and shallow sideways range since late 2016. JPY/THB, which sits currently at 0.3016, is fast approaching the lower boundary of this range at 0.30, which can be considered major support.
If JPY/THB can make a clean break below 0.30, it will likely indicate a long-term decline in the exchange rate, something which is supported by current fundamentals. The baht is expected to benefit this year from an improved outlook for emerging markets.
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