USD/JPY: Yen Fortified By Strong Machinery Orders

The Japanese yen is deemed to sustain yesterday’s gains alongside the US dollar as the nation’s core machinery orders inclined for a second consecutive month in November in a positive sign that companies could gradually increase capital spending. Meanwhile, Japanese Economy Minister Akira Amari’s comments yesterday highlighting the risks from excessive declines in the yen are still seen to shore up the currency today.

The Japanese Cabinet Office revealed today that core machinery orders, often regarded as a leading indicator of capital spending in the coming six to nine months, jumped 3.9 percent in November to follow the 2.6 percent rise registered in the previous month. Analysts say that machinery orders will likely recover this year, helped by the global economic recovery as China’s economy is showing signs of life. Compared with a year earlier, core orders increased by 0.3 percent in November, far from the median estimate for a 6.5 percent annual decline.

Capital spending in Japan has lacked momentum in recent months as companies delay business expenditures amid uncertainty over global growth prospects, while a boost from post-disaster reconstruction has not delivered as strongly as anticipated. Nonetheless, analysts expect that the broader economy and exports will pick up gradually along with the global recovery, helped in part by the yen’s weakness due to BOJ easing.

Although the report is deemed to do little to ease pressure on the BOJ to deliver additional monetary stimulus in its meeting next week amid intense pressure from Japan’s Prime Minister Shinzo Abe, the yen is believed to be supported by comments made yesterday by Economy Minister Akira Amari.

He cautioned that if the yen becomes too weak, import costs will jump, inflicting damage to people’s livelihoods. Amari added that he hopes the yen will come to a level that will minimize the negative impact on livelihoods. Considering these, a short position is advised for the USD/JPY trades today.