Japanese manufacturing indicators continue to impress this week. On Monday, BSI Manufacturing Index broke a nasty streak of two sharp declines. This reading comes on the heels of Core Machinery Orders, which jumped 4.9%, well above expectations. Preliminary Machine Tool Orders declined 8.4%, but this was markedly better than the previous reading of -19.6%. The Bank of Japan will release a monetary statement next Wednesday, just a day before the Fed releases its statement. The bank cut rates into negative territory earlier in the year, but has had little success in coaxing inflation to higher levels. Will the BoJ adopt further easing measures? If the bank does take action, deeper rate cuts or expanding the asset-purchase scheme (or some combination) are the most likely routes. In addition to its standard rate announcement, the BoJ has said it will also conduct a “comprehensive review” of its policy at the September meeting. What this entails is not clear, as the BoJ has not conducted such a review in the past.
- Below: 101.20, 100.55, 99.71 and 98.95
- Above: 102.36, 103.73, 104.99 and 106.3
USD/JPY ratio is unchanged on Tuesday. Currently, long positions have a substantial majority (66%), indicative of trader bias towards USD/JPY continuing to move higher.