RTTNews - Tuesday in Asia, the yen strengthened to multi-day highs against its major counterparts after reports from China showed industrial output grew less than expected and exports fell for a ninth month in July, spurring demand for the safety of Japan's currency.
China's statistics bureau said industrial production grew 10.8 percent in July, below economists' expectations of a 11.7% rise.
Meanwhile, the Customs Bureau said in a report that Chinese exports declined for the ninth consecutive month in July. Exports were down 23% in July from the same period of the prior year, following June's 21.4% decline. Meanwhile, imports dropped 14.9%, larger than the 13.2% decrease seen in June.
A fall in some Asian stocks also boosted the yen. In carry trade, investors borrow money from Japan where the interest rate is low to buy high yielding assets in other countries. So, an unwinding of carry trades results in traders liquidating their investments and scrambling for yen to repay their yen-denominated loans, which pushes up the value of the Japanese currency.
Stocks in Hong Kong and Shanghai were down nearly 1 percent today after the Chinese data. Elsewhere, equity markets were mostly flat as South Korea, Japan and Singapore all indicated that the economic outlook was uncertain despite some signs of improvement.
As widely expected, the Bank of Japan left its key overnight lending rate unchanged at 0.1% today. The central bank said the economy has stopped worsening, leaving its view unchanged from a month ago. The outlook is attended by a significant level of uncertainty.
The world's second-largest economy has shown signs of picking up recently, the Cabinet Office said in a monthly report in Tokyo today, adding that conditions are still difficult.
The government said the economy will continue to improve as companies cut inventories, overseas demand stabilizes and Prime Minister Taro Aso's 25-trillion-yen ($258 billion) stimulus packages take effect. Aso is struggling to spark a recovery as his ruling Liberal Democratic Party trails the opposition Democratic Party of Japan in polls ahead of an August 30 election.
While exports and production are picking up, spending by companies is declining sharply and household consumption remains generally weak amid the worsening employment and income situation, the statement said.
Policy makers in the U.S., Europe and the U.K. are also keeping borrowing costs unchanged to spur their economies. Last week, the European Central Bank and the Bank of England left their benchmark rates unchanged at 1% and 0.5%, respectively.
Federal Reserve policy makers are expected to hold the fed funds rate at the zero-0.25 percent level this week. Analysts expect they could sound more confident about the economy and might lay out a plan for pulling back some of the Fed's quantitative easing policies.
The yen that closed yesterday's trading at 97.14 against the dollar rose to a 4-day high of 96.57 during Asian deals on Tuesday. The next upside target level for the Japanese currency is seen at 95.8.
The yen plunged to near an 8-week low of 97.80 against the dollar on August 07 as the dollar gained 2% on that day following better-than-expected U.S. jobs data.
The U.S. Labor Department report showed that non-farm payroll employment fell by 247,000 jobs in July following a revised decrease of 443,000 jobs in June. Economists had been expecting employment to fall by 325,000 jobs compared to the drop of 467,000 jobs originally reported for the previous month. The Labor Department also said that the unemployment rate unexpectedly edged down to 9.4% in July from 9.5%, recording a decrease for the first time since April 2008.
But the yen is showing strength this week on encouraging economic reports from Japan. Reports showed yesterday that Japan's current account surplus and the machinery orders rose more than expected in June. Thus far, the yen has advanced 1.3% against the dollar.
In Asian trading on Tuesday, the yen soared to a 6-day high of 136.46 against the euro, up 0.6% from yesterday's close of 137.34. If the yen gains further, it may likely target the 136.0 level.
After hitting a 2-month low of 138.73 against the euro on Friday, the yen has appreciated 2% thus far.
Against the pound, the yen jumped to an 8-day high of 158.97 in Asian deals on Tuesday. On the upside, 157.5 is seen as the next target level for the Japanese currency. At yesterday's close, the pound-yen pair was quoted at 160.07.
The pound lost 1% against the yen and hit a 3-day low on August 06 after the Bank of England surprised markets by expanding its quantitative easing program. Although the pound recovered its losses on Friday, it pulled again this week.
During Asian deals on Tuesday, the yen strengthened to an 8-day high of 88.96 against the Swiss franc. If the Japanese currency edges up further, it may test resistance around the 97.1 level.
The yen that slumped to near an 8-week low of 90.74 against the franc on Friday has gained 2% since then.
In Asian deals on Tuesday, the yen jumped to a 4-day high of 80.43 against the Aussie and 65.06 against the NZ dollar. The next upside target level for the yen is seen at 79.5 against the aussie and 64.5 against the kiwi. The aussie-yen pair closed trading at 81.36 and the kiwi-yen pair at 65.77 on Monday.
Against the Canadian dollar, the yen surged up to a 4-day high of 88.57 in Asian trading on Tuesday. On the upside, 87.7 is seen as the next target level for the Japanese currency. At yesterday's close, the loonie-yen pair was quoted at 89.28.
Looking ahead, the U.K. visible trade balance report for June is due for release at 4:30 am ET.
Across the Atlantic, the U.S. second quarter preliminary non-farm productivity report and the wholesale inventories for June are expected in the New York session.
From Canada, the housing starts report for July has been slated for release at 8:15 am ET.
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