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Yen outlook subdued on mixed data

The latest round of Japanese economic data released this morning gave more reasons to why a softer yen would be expected in the near term, although though there are signs of longer-term revival.

Japanese 10,000 yen notes
Source: Bloomberg

On the downside, the country’s jobless rate in June saw a surprise rise, due to a larger workforce. The jobless rate hit 3.7%, above both the market expectation of 3.5% and last month’s reading of 3.5%.

Retail trade for June also missed consensus forecast, at -0.6% year-on-year vs the expected rate of -0.5%.

Retail sales were softer than expected at 0.4%, instead of the market forecast of 0.8%

These data points could peg back any expectations of rate hikes. However, there were some bright spots that indicate Abenomics has been successful in putting the economy in the right direction.

The jobs-to-applicants ratio in June rose to its highest in 22 years at 1.10 from 1.09 in May, suggesting a tighter labour market that could boost wages and support consumer spending. The unemployment rate is considered a lagging index relative to this data, so it could be a sign of more improvements around the corner.

The drop in household spending was also not as bad as most feared. It dropped 3% in June year-on-year, better than the consensus forecast of -4% and the -8% from the prior month.

Recent signs

Until we see more positive signals, the Bank of Japan (BoJ) is likely to keep its easing policy, especially with recent signs of a slowdown in progress towards its 2% inflation target.

Core inflation, stripping out the effects of April’s consumption tax hike, rose only 1.3% in June. This was slowed down from the 1.4% in May and 1.6% in April.

The yen will be pressured further by other factors amid exports looking weak in recent months and the winding down of QE3 by October.

In the interim, the yen is likely to continue to trade range-bound between a resistance of 101.88 and support at 101.83, as the markets await a heavy round of US data coming out later this week. Some of the key events that could move USD/JPY will be non-farm payrolls for July, initial jobless claims, FOMC’s rate decision, Q2 GDP estimates, and more insight into the Fed’s pace in tapering QE3.

Singapore Open outlook

It will be a light day of data with few market catalysts. We are calling for the MSCI Singapore to open at 0.14% higher, up at 383.65 points. Chinese H-shares are expected to continue their run and rise 0.51% to 11,122.2 points.

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