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21.07.2016 07:01

Asian session review: yen weakened

The US dollar rose against the Japanese yen, supported by expectations that the Japanese government may take new strong measures to stimulate the economy. Informations in the media said that the government is going to adopt a package of 20 trillion yen ($ 187 billion) later this month in QE.

Economic data from Japan was lower than forecasts. The index for large enterprises of all industries decreased by -1.0% in May, in line with analysts' forecasts. Previous value was revised downward from 1.3% to 0.8%. This indicator estimates the capital costs of all sectors except the Japanese financial industry and is a leading indicator of productivity growth. The decline is a negative factor for the Japanese economy since the index is closely monitoring the overall performance of GDP and economic growth.

The decline of the yen is also due to expectations the Bank of Japan will change policy soon. A Reuters poll showed that 23 out of 27 analysts expect the Bank of Japan easing policy at the meeting on July 28-29, when the updated long-term economic and inflation forecasts will be issued. Recall, last month two-thirds of the respondents expect the Central Bank to ease policy in July. Meanwhile, 80 percent of economists said the central bank will soften the policy through a combination of measures such as a reduction in interest rates and an increase in the purchase of assets.

The euro strengthened slightly in anticipation of today's meeting of the European Central Bank. Analysts expect that the ECB is likely to refrain from further easing of monetary policy, despite the strengthening of the risk after Brexit, and will continue to focus on the implementation of the previously announced measures. A recent Reuters poll showed that none of the experts expect a change in policy in July. However, analysts pointed out that the ECB, faced with a further slowdown in euro zone growth after the decision of the UK to leave the EU, it will soon be forced to extend and expand its program of asset purchases (QE). In addition to the purchase of bonds until March 2017, economists say the ECB abandons its early limitations and starts buying bonds with a negative yield and lower deposit rate, which now stands at 0.4 percent..

The New Zealand dollar fell below $ 0.7000, before the start of the current session, after the Reserve Bank of New Zealand, in its review of the economy reported the likelihood of further easing of monetary policy. According to the central bank, needs a lower exchange rate of the New Zealand dollar. NZD puts pressure on key sectors such as the dairy industry and production, making it difficult to achieve the inflation target.

The RBNZ also noted that the economic growth prospects are surrounded by considerable uncertainty. "We will continue to monitor the economic data flow coming to determine further action in fiscal policy" - said the central bank.

Later, during the session, the New Zealand dollar strengthened slightly after the publication on the number of tourist arrivals data. As reported by the Bureau of Statistics New Zealand, in June, the number of tourists increased by 10.9%, after rising 9.6% in May. Since the tourism industry is a large proportion of the GDP the figure is an important indicator of overall economic conditions in the country. Typically, a high value of the index is a positive factor for the New Zealand currency.

21.07.2016 07:03

Today’s events:

Market Focus

  • The Bank of Japan decided by a 7-2 majority vote to hold the interest rate at -0.10%
  • Earnings Season in U.S.: Major Reports of the Week
  • U.S. commercial crude oil inventories decreased by 4.7 million barrels from the previous week
  • Australian unemployment rate stable at 5.6% in June
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