Week in FX Asia – USD/JPY Flirting with 110 as NFP Boosts Dollar

• BoJ and Abe say weak yen a positive
• USD/JPY tests 110 awaits policy meeting next week
• Hong Kong unrest and weak Chinese PMIs

Japanese Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda both tried to calm local concerns that the Yen slide is happening too fast. The USD/JPY is close to breaking the 110 price level. The PM Abe addressed councillors in the Japanese Diet and he told them that a virtuous economic cycle is about to begin. BOJ’s Kuroda for his part tried to reassure investors by saying the weakness of the currency is positive if it truly reflects fundamentals. Kuroda told the parliament that a weak yen is good for exporters but the imports have to be managed. He considers the net effect positive.

The duo of Japanese leaders are facing criticism for lack of definitive action in 2014. Last year was an achievement of economic policy for Japan so much, that its movement is named after its architect. Abenomics has so far failed to gain any traction in 2014 and its is only because of interest and growth rate differentials that the JPY has moved to this level desirable by exporters.

USD/JPY tests 110 awaits policy meeting next week

The USD/JPY was able to break above 110, but retreated currently trading at 109.79 after strong employment numbers out of the United States. Next week’s release of the minutes by the Federal Reserve and the Bank of Japan’s Monetary Policy statement on Monday could further fuel the USD rally.

Hong Kong unrest and weak Chinese PMIs

Hong Kong political unrest in a very civilized and tech savvy manner have proven difficult for the Chinese government to deal with. The two system rule is facing a tough test and will determine how China deals with public protest and difference of opinion in a well connected world. Asian markets were hit as protests and political uncertainty are not alien to the region, given the coups this year. What provided a change was the fact that HK was one of the shining examples of capitalism around the world, but yet under communist rule after the handover in 1997. Now China has the opportunity to have a smart protest movement inside a repressive government. No doubt Chinese leaders are anxious as they are not used to dealing with this kind of protestors but must do so in the same civilized manner if they intend to write a new page of Chinese history instead of going back to using antiquated methods.

Economic growth forecasts continue to shrink after manufacturing PMIs continue to weaken. This week even service PMIs came in lower but still well above the 50 expansion reading, the service PMIs fell to 54.0 from an earlier print of 54.4. The real estate sector is contracting after falling below 50. This was a disappointment after what is traditionally the best month for real estate September did not live up to expectations.

Next Week For Asia:

The market is not done yet with the central banks. Next week the Reserve Bank of Australia kicks things off on Monday. Despite an AUD rally of late (AUD$0.8670), the market will be expecting some dovish currency comments from Governor Glenn Stevens. It has become a regular part of his rhetoric repertoire.

On Tuesday, the Bank of Japan takes center stage; in all respects Prime Minister Shinzo Abe is happy with the yen’s relative weakness of late. Wednesday will be dominated by the Federal Open Market Committee minutes. As per usual, the market will be looking for any clues to justify building on current positions. The Bank of England meeting dominates Thursday: Is Governor Mark Carney still the favourite to be the first developed nation to hike interest rates? Finally on Friday, Canada will report its own jobs report.

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