Japan's PPI, US durable goods orders

Forex News and Events

Japan: inflation target set to be lowered (by Yann Quelenn)

Against all odds, Japan’s PPI Services came in above expectations at 0.6% year-on-year for July. The move is very light and this indicator is not closely watched by market participants. However, as most economic indicators out of Japan, that one delivered a mixed message. Japan is still struggling to enter into a sustainable growth trend, in spite of massive quantitative and qualitative easing program from the BoJ.

Tomorrow Bank of Japan’s Governor Kuroda will speak in New York about Japan’s Inflation target. The central bank promised to hit 2% inflation in 2 years but it seems that this target was too optimistic due to lingering low oil prices. A strong revision of the inflation target to the downside will send the USDJPY higher as we consider that a small change in the inflation target is already priced in. In addition, we consider that the BoJ is fighting against a strengthening yen as a Fed lift-off fades away. A strengthening currency will open up new discussions for additional monetary easing and even worse, it will threaten the Abenomics growth plan. Therefore, we anticipate the USDJPY to go back above 120 in the short-term.

Market’s attention has shifted away from fundamentals (by Peter Rosenstreich)

Market volatility and fears of global economic slowdown has shifted the Fed rate hike discussion away from US fundamentals. In addition, incoming Fed comments indicates renewed dovishness. Atlanta Fed President Lockhart stated, “the appreciation of the dollar, the devaluation of the Chinese currency and the further decline of oil prices are complicating factors in predicting the pace of growth.” Currently the probability of September launch has dipped below 25%. Todays, durable goods order potentially could refocus the markets attentions on solid US fundamentals. Following a 3.4% jump in Junes headline durable goods orders markets are anticipating a weak -0.5% read. Yet, incoming data including auto bookings suggests upside surprise should be expected. A good read should allow USD to gain against EM and commodity related G10 currencies. That’s said, we need a firming in equity markets to support risk sentiment for any sustainable USD rally.

EURJPY - Buying Pressures Continue