The Yen might finally have found a reason to but in a sustainable high for the moment after comments from the Japanese Economy Minister, Akira Amari, yesterday reinforced that it's not just the weaker Yen that is the panacea for corporate Japane. Dow Jones news wires reported Amari said,
a yen that's too weak is not good for the economy... companies must be resilient enough to overcome some foreign exchange related disadvantages".
Amari also talked about the average Japanese citizen being at a disadvantage from imported inflation from an excessive Yen weakening.
Amari's comments are really interesting because we think he shines a light on the key problem with Japan and Japanese corporations in 2013. That is, just weakening the currency is not going to put Sony back in its once pre-eminent position. An excessively weak Yen is not going to cause Suzuki to sell more cars in the US and an excessively weak Yen is not going to bridge the innovation gap between once mighty Japanese companies and their Asian and American rivals.
Our view that USDJPY is heading to 100 is as much about the lack of competitiveness and innovation in the Japanese economy as anything else and we think that Abe's plans and comments ultimately serve to reinforce the moribund nature of Japan and focus attention at its poor economic performance and poor fiscal and Sovereign Debt position - inflation of 2% simply makes it all the harder for Japan to make ends meet.
As you can see in the chart above USDJPY has been as overbought as the markets get for a while now yet it marched on relentlessly. We also know that as Jesse Livermore used to say "in a bull market be bullish" and this is clearly a bull market for USDJPY. So going short is probably not such a smart move except for the most aggressive of traders (we might have a crack :) ) The set up is there now and a break of the overnight low at 88.27 by say 8 points would signal a deeper move.
Clearly as you can see in the overlay chart above the Nikkei is trading in lock step with the Yen's weakness so a retracement here is in the offing as well if 88.27 gives way.
While our focus is on the Yen there was plenty of interest in other markets. Newswires are focused on the new Facebook search engine which doesn't seem to have helped the share price of it or other Tech stocks which are under pressure with Apple in particular under more pressure of more than 2% and just $20 or so above the big multi-year trendline we highlighted yesterday as important support.
Newswires are also saying that the weakness in equities is because markets are focused on the looming debt ceiling debate which seems to make sense after US Treasury Secretary Tim Geithner's letter yesterday and Ben Bernanke's speech both highlighted the proximity of the issue and the risks of another fight.
If markets do focus sharply on the Debt Ceiling then the recent more ebullient mood might be put on the back burner until a resolution is found.
On the data front Europe's raft of inflation data across the continent was pretty much spot on what the pundits had predicted but German GDP was a little lower than expected at 0.7% for 2012 which implies that perhaps the Q4 release of German GDP to be released next month might actually print negative. US retail sales were better than expected up 0.5% in December although the Empire Manufacturing index was in contraction territory for the 6th month in a row printing -7.78 versus expectations of a return to 0.
So at the end of play it wasn't the best night's trade with Germany underperforming it's European cousins after the weaker than expected GDP but also the report from SAP which disappointed the market. At the close the DAX was 0.69% lower, the CAC fell 0.30% while the FTSE rose 0.15%.
In the US the Nasdaq has been in the red all day as tech comes under pressure and with 40 minutes left to go it is down 0.24% but improving from the lows. The Dow opened down 60 points itself before clawing back to positive territory up 25 points or 0.18%. The S&P 500 is up just one point.
In Tokyo if the Yen is going to reverse its recent weakness then the Nikkei is about to undergo a correction as well which will add to the weaker tone that is likely to be seen in markets today.
The currency wars are back with Jean Claude Juncker saying the Euro is trading "dangerously high" according to Bloomberg which knocked the Euro lower. On the day the Euro traded a range of 1.3393 down to 1.3266 after the Juncker comments and it sits at 1.3287 for a loss on the day of 0.70%. As noted above USDJPY is also lower falling 0.85% on the day to sit at 88.70 after a range of 89.63 down to 88.27. GBP is off a little down 0.13% at 1.6057 while the AUD is 0.11% lower at 1.0553.
Looking at the Euro there has been a raft of big players come out and make calls that Euro is going to head to 1.38/1.40 this year over the past few days. And although I really do fail to see the allure of the Euro in a fundamental sense at any level above 1.20 I have to put that rhetoric in a box and try to evaluate the Euro objectively. At some point the weak economy of Europe is going to knock Euro lower but for the moment as sentiment recovers from its acute weakness last year and as the Fed and other central banks continue to goose stocks so too then is the outlook for the Euro for more gains.
As you can see in the chart above Junckers verbal intervention might have come at a good time in the Euro's run higher in slowing it down and it is this neck line that is the key to the eventual run higher. 1.3500/25 is the key resistance.
The Aussie is marching up and down on the spot as the key drivers of FX markets at the moment pass it by. Overall the AUDUSD needs a break of 1.06 to kick on.
Crude is stalled below big trendline resistance for the moment and looking like a short sharp fall might be in the offing sometime soon. LAst night NYMEX crude fell 0.74% to $93.44 Bbl. Gold was up 0.82% to $1682 oz and Silver rose a sharp 0.80% after yesterday's run to $31.66 oz. In the Ags Wheat was the standout rising more than 2% to continue this big push higher over recent days.
Westpac Consumer Confidence in Australia this morning and then Japanese Machine orders before Motor Vehicle sales in Australia. I marvel at Australia's love affair with new cars over the past few years but not a lot of 0% finance deals of late so this data might disappoint - we'll see. Tonight the Brazilian Central bank has an interest rate decision and we get tick flows and industrial production in the US. Given the outlook for Nymwx crude we'll be watching the EIA release as well.
Catch me on Twitter @gregorymckenna and @FX_Global and don't forget the Webinar this afternoon at 3GMT