Daily Afternoon Report 10.05.2016

The dollar continued to move higher against the broadly weaker yen on Tuesday after rallying on Monday when Japan’s finance minister said Tokyo was prepared to intervene in the currency market and while investors waited for another indicator on the U.S. labor market.

USD/JPY rose 0.71% to 109.09, the highest level since April 28 after ending the previous session with gains of 0.94%.

The dollar had fallen to 18-month lows of 105.05 against the yen last Tuesday after the Bank of Japan kept monetary policy unchanged, defying market expectations for additional easing.

Japan’s Finance Minister Taro Aso said Monday that financial authorities are prepared to intervene in the currency market if excessive moves in the yen are enough to affect Japan’s economy.

The yen initially showed little reaction to the comments amid the view that Japanese officials are unlikely to take steps to weaken the currency in the absence of support for such a move.

Late last month the U.S. Treasury Department added Japan to a watch list of countries it is monitoring to gauge whether their foreign exchange policies provide an unfair trade advantage.

In its report, the Treasury noted that the current dollar-yen market was “orderly” and reiterated all countries must abide by G20 and G7 commitments on exchange rate policies, widely seen as a call for Japan to limit foreign exchange interventions.

Aso said Monday the Treasury’s move to put Japan on a watch list “won’t constrain” Tokyo’s currency policy.

Japanese officials continued to insist on the possibility of intervention Tuesday as Aso reiterated that Tokyo will intervene in the currency market if “one-sided” moves in the yen persist.

Also Tuesday, Japan’s economy minister Nobuteru Ishihara said he was closely watching financial markets after the yen’s gains last week.

However, offering more details, Koichi Hamada, key economic adviser to Japanese prime minister Shinzo Abe, pointed to levels far below the current trade.

“In case the yen happens to be so firm that it becomes between 90-95 yen per dollar, then Japan would have to intervene even if it angers the United States,” Hamada told Reuters.

“I don’t think Japan would be able to wait,” he added.

The euro was also higher against the yen, with EUR/JPY rising 0.63% to 124.07 after ending Monday’s session with gains of 0.92%.

Meanwhile, the single currency wavered against the dollar throughout Tuesday’s trade with EUR/USD edging down 0.07% to 1.1374.

In the euro zone, data on Tuesday showed that German industrial output fell more than expected in March, but exports rose strongly.

German industrial production fell by 1.3% in March, the largest monthly decline since August 2014.

A separate report showed that Germany’s exports rose by a larger-than-forecast 1.9% in March while imports fell by 2.3%, increasing concern over domestic demand and widening the trade surplus to €23.6 billion.

Cable moved higher with most eyes on the Bank of England’s (BoE) policy decision on Thursday that will be accompanied by updated economic forecasts.

The BoE was expected to hold steady on interest rates and lower projections for growth after all three purchasing managers’ indices showed weakness in the U.K. economy.
Specifically, GBP/USD rose 0.24% to 1.4442.

Elsewhere, the Australian dollar pushed higher, with AUD/USD up 0.27% at 0.7336 after initially slipping lower in the wake of mixed Chinese inflation data.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, edged forward 0.11% to 94.24.

Investors awaited the release of the Job Opening and Labor Turnover Survey (JOLTS) for yet another indicator of the U.S. employment picture.

The report has garnered more attention, as Federal Reserve Chair Janet Yellen often cites the survey when assessing the state of the labor market.