Japanese manufacturing confidence hit a six-month low! U.S. dollar against the yen high callback

On Wednesday (October 13), the U.S. dollar and the yen fluctuated lower. As the U.S. dollar index fell sharply during the day, the CPI data failed to provide enough support for the U.S. dollar, and Japan’s poor economic data also triggered a certain degree of risk aversion.


Japan’s core machinery orders unexpectedly dropped in August, highlighting the lingering pressure on companies and the overall economy as companies strive to get rid of the drag of the epidemic.

Data from the Cabinet Office on Wednesday showed that core orders in August fell 2.4% from the previous month. Core orders are highly volatile data and are considered an indicator of capital expenditure in the next six to nine months.

The July data was an increase of 0.9%. The analyst's survey forecast value is an increase of 1.7%. The government lowered its assessment of machinery orders for the first time in six months on Wednesday, saying that the recovery of the series appeared to be stalling.

The survey on Wednesday showed that the confidence of manufacturers was the worst in six months, while the confidence of the service industry was still shrinking, as the Japanese economy was facing a global chip (chip) shortage and the impact of soaring raw material costs.

Following the second quarter's GDP growth rate of 1.9% year-on-year, analysts predict that Japan's GDP growth will be smaller in July-September, pointing out that even if private consumption has not shrunk, it will show a downturn.

By industry, manufacturer orders in August fell by 13.4% from the previous month, the first drop in five months. According to a government official, this was the largest drop since February 2016.

Since the Fed hinted at the end of September that it would start to reduce bond purchases before the end of 2021, US bond yields have been rising. In fact, the yield on the benchmark 10-year US Treasury note soared to a 4-month high last Friday. On the other hand, the Bank of Japan’s yield curve control policy has brought the 10-year Japanese government bond yield close to zero.

The market may also have begun to digest the possibility of interest rate hikes in 2022 in response to the risk of inflation becoming too high. This is seen as another factor pushing up bond yields.

Even so, in the case of a weaker U.S. dollar, the U.S. dollar against the yen was still dragged down, even though the US September CPI was better than expected.

However, Credit Suisse economists still expect the pair to soar, reaching a 2017 high of 118.62.

During and after the October 31 general election, there is still room for the yen to weaken further. The potential of USD/JPY in the fourth quarter may reach the 2017 high of 118.62.

Unless global risk assets collapse sharply, the bottom of the dollar against the yen will rise from the previous 108.00 to 111.60.

The upper resistance pays attention to 113.80 and 114.00, and the lower support level pays attention to 112.82 and 112.08.

(Daily chart of USD/JPY)

GMT+8 22:38, USD/JPY was quoted at 113.33.