Nikkei boost from weaker yen, strong earnings

Investors have been positioning themselves ahead of the FOMC meeting later tonight by going long in USD/JPY.

A U.S. ten dollar bill and Japanese 1000 yen notes
Source: Bloomberg

The currency pair rose 0.26% on Tuesday’s trading session and saw eight straight days of gains.

The greenback has been lifted due to expectations that the upcoming round of US economic data and events this week could accelerate the likelihood of interest rate hikes.

That’s likely to put some pressure on the yen in the near term, which has been a boon for exporters such as the auto industry.

Car makers such as Nissan and Honda have reported pretty robust earnings. Honda has raised its profit forecast to its highest in seven years based on a weaker yen outlook and optimism over emerging markets such as China and Indonesia.

Sales in its North American markets though appear to still be relatively sluggish, have been weighed down by recalls and delivery delays.

Industrial production data disappoints, but priced in

This morning’s data from Japan’s June industrial production was disappointing. Manufacturing was -3.3% month-on-month, missing consensus forecasts of -1.2%. On a year-on-year basis, production rose 3.2%, falling short of the 5.2% expected by the market.

There was no immediate reaction from USD/JPY, which appears to be priced in some of the news and held on to its overnight gains. With little market catalysts for the rest of the day, USD/JPY is unlikely to make any significant moves. It appears to have found a near term resistance of 102.12, but could test this level as we head into the US trading session.

Not loving it

Not a great day for McDonald’s Japan which opened on the Nikkei down by 1%. Yesterday, the company pulled its profit forecast for the year after being affected by China’s meat scandal.

As it transitions to a new supplier, it’s expecting a hit on sales in the interim with a smaller menu and as some customers shy away.

However, beyond this short term impact, the company’s fundamentals are still relatively sound and could present an attractive opportunity for some investors to buy on dips.

Ahead of the Singapore Open

With a relative lack of market catalysts today, investors are likely to hold back and keep themselves positioned for the macro data and events rolling out of the US tonight.

The Nikkei could extend its run with the weak sentiment over the yen and some strong corporate earnings coming through. However, we could start to see some profit-taking today after four straight days of gains.

We are calling for the MSCI Singapore to open 0.14% at 384.15 points, and China H-Shares to open 0.09% higher at 11,129.9 points.

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