The Japanese Yen plunged to new multi-year lows especially against the US Dollar as the USDJPY broke out above the 107.000 level only to be stopped by a very big resistance level which is located around 107.250. Technically speaking this currency pair is ready for a correction which may take us back down 500 pips before a new breakout is likely to happen.
From a fundamental perspective the Japanese Yen received mixed economic data this week. Second-quarter GDP contracted slightly less than previously reported at 7.1% year-over-year which is primarily due to the increase in sales taxes announced on April 1st. Business spending contracted by a sharp 5.1% while consumer spending dropped 5.3%. This put downward pressure on the Japanese Yen from the start of the trading week.
The Japanese trade deficit also widened much more than expected and was reported at ¥828.1 billion for July. This is a sharp increase over June’s deficit of ¥537.1 billion. More bad economic news were reported out of the Eco Watchers Survey for August where the current index retreated into contraction territory with a figure of 47.4. The outlook index avoided contraction marginally with a reading of 50.4. Minutes from the Bank of Japan stated that the central bank will focus more on sustainability of price trends.
The Tertiary Index was reported at 0.00% for July which missed estimates and put further downward pressure on the Japanese Yen. Machine tool orders for August were also lighter than expected at 35.6% while consumer confidence unexpectedly dropped to 41.2 in August which raised concerns that the increase in the sales tax may have a much bigger negative impact on the Japanese economy than previously predicted.
Machine orders disappointed with an increase of 3.5% for July while inflation as measured by the producer price index moved in the opposite direction the Bank of Japan wants it to as it decreased to 3.9% in August year-over-year. The positive news came out of the BSI data for the third-quarter which showed the Large All Industry Index at 11.1 and the Large Manufacturing Index at 12.7. Industrial production rose 0.4% in July.