The yen bears will take anything – at this point they do not really care. After a month of struggling to break the psychological ¥100 barrier, the bears must now feel more confident after Friday’s NFP print that another positive U.S. data print over the next two weeks could finally prove to be the catalyst that allows the market to punch through this imaginary barrier.
Friday’s U.S. employment headline employment print (+165K) coupled with the previous two months' strong revisions higher (+114k) has favored the ‘mighty dollar,’ sending it higher, temporarily at least, against both the EUR and JPY as the market remembers that the Fed can also ‘decrease’ its bond buying, as reiterated earlier this week at the FOMC meeting. USD/JPY quest may be made easier this time around if there are not as many option barrier plays built up just under the ¥100.
Despite Abenomics continuing to attract its share of skeptics, Kuroda’s bold efforts to reinvigorate his economy is clearly driving improvements in sentiment and inflation expectations (April manufacturing activity – 51.1 vs. 50.4 and March IP up for the fourth straight month +0.2%, m/m), which in turn should provide a solid base for further fundamental gains. A weaker yen continues to boost export demand while household spending continues to rise and Japanese unemployment rate falls (+4.1% vs. +4.3%). Even offbeat measures (core-core CPI) suggest that the BoJ’s drive to +2% inflation target is on the move.
“It is just a matter of time until the rest of the world catches up with the reality of how Japan’s experiment affects them. The hope is that, bolstered by evidence of Japan’s serious pursuit of structural reforms, they will accommodate the experiment in two ways: by not retaliating, and by undertaking their own domestic reforms that compensate for the output lost to Japan. In other words, a growing pie for all better accommodates all” – Mohamed A. El-Erian, CEO PIMCO