Despite improving data from Japan, the Japanese yen closes another week in the red. It’s likely that risk sentiment continued to be the main driver of yen weakness, fueled by ongoing vaccine optimism and stimulus hopes in the U.S.
Japanese Headlines and Economic data
Japan’s factory output keeps gaining even as virus resurges – “Factory output gained 3.8% from September led by cars and general machinery including conveyor belts and cranes, the economy ministry reported Monday. Analysts had forecast a 2.4% increase.”
Japanese retail sales jumped 6.4% year-on-year in October to rise for the first time in eight months. “Matching a 6.4% gain expected by economists in a Reuters poll and turning around from an 8.7% drop in the previous month.”
Despite the net positive updates from Japan on the session, the yen moved broadly lower through the different sessions. There was a slight risk-on lean, potentially driven by the positive economic data from Asia, especially from China (China says manufacturing activity expands for ninth straight month)
Japan Manufacturing PMI reaches highest level (48.7 in October) – “The latest reading was the highest since August 2019, and signaled only a marginal deterioration in overall conditions, as the sector continued to take tentative steps towards more stable operating conditions.”
Another down session for the yen even with the better-than-expected PMI update. Risk sentiment was leaning positive once again, possibly fueled by a combination of catalysts from around the globe (e.g., South Korea’s Economic Recovery Hints at Global Trade Resilience, Powell, Yellen call on Congress to boost economy as lawmakers seek deal)
Overall livelihood: 36.7 (up 0.5 from the previous month)
Income growth: 35.7 (up 0.4 from the previous month)
Employment: 26.5 (down 0.6 from the previous month)
Willingness to buy durable goods: 35.7 (the same as the previous month)
Japanese services sector activity contracts further in November – “The seasonally adjusted Japan Services Business Activity Index posted 47.8 in November, fractionally up from 47.7 in October. Activity remained firmly in contraction territory, despite falling at the slowest pace in the current sequence of decline that began in February.”
The Japanese yen finally finds a bid against the majors during the Thursday session, likely on negative risk sentiment rising on U.S. headlines ( vaccine expectations are dialed back, more lockdowns are called in and virus deaths makes new records).
No headlines from Japan on the session, but we did see the yen move broadly lower into the Friday close. Once again, it was likely broad positive risk sentiment that was the main driver for the slow move lower, this time on rising expectations of a stimulus package coming soon to the U.S. after a very disappointing Non-Farm Payrolls report.