USD/JPY Fundamental Forecast – September 2, 2016

The USD/JPY dipped 16 points to trade at 103.27 helped by the climbing US dollar. Capital spending reported lower than expected but currency moves were all about safety as markets moved into higher risk as the new month unfolded. The stronger US dollar has helped the pair move away from its trading level around 100 but the currency remains well over valued as the safe haven sentiment continues to plague the country and the currency. Data from Japan has been weak and the effects of the stimulus from the Bank of Japan and the government has done little to help support the economy.
Japanese manufacturing activity showed signs of steadying in August as output rose for the first time in six months, but the expansion was only slight, a private survey showed, casting doubts over whether the economy will return to growth in the current quarter.
Just a day ago the Manufacturing Purchasing Managers Index inched up to 49.5 in August on a seasonally adjusted basis, versus a preliminary 49.6 and up from a final reading of 49.3 in July. While the decline was marginal, the headline index remained below the 50 threshold that separates contraction from expansion for the sixth month.
The index for output rose to 50.2 from 49.4 in the previous month. It was the first increase since February, though it was slight and remained below the historical average.
Bloomberg reported that the costs of the central bank’s record stimulus are mounting, while its chief goal -- spurring inflation to 2 percent -- appears as far away as it was when Kuroda took the helm in 2013. The BOJ is in the midst of reviewing its policy before a board meeting later this month, but the governor has said there will be no scaling back of his monetary program.
“These numbers show the distortions of the BOJ’s current policies,” said Sayuri Kawamura, a senior economist at the Japan Research Institute in Tokyo. “The annual amortization losses are going to increase and consume the BOJ’s profits, and the risk is increasing that the bank’s financial stability will be shaken.”

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