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The JPY - Japan Yen weekly update 30 Jun 2008
In this week's
update: Another round of risk-aversion?
- UK mortgage approvals slump
- Japanese inflation driven only by food and energy
Sterling initially moved ahead, passing ¥212 on the way to a Thursday peak above ¥213.50. Thereafter it was all downhill. A drop on Friday to ¥210.50 was followed by a two Yen correction but the Pound was back down there when the market opened in London this morning.
The week's economic data were not particularly helpful to Sterling. Its saving grace was that figures from elsewhere were almost equally as lacklustre. The highlight - if a negative figure can be referred to as such - was the CBI Distributive Trades survey. After the previous week's unbelievably strong Retail Sales performance the market was ready for a burst of harsh reality from the shopkeepers. Forecasters were going for a 16 reading so when it turned out to be only 9 there was a degree of relief.
Rather less satisfactory was mortgage activity among BBA members. The Independent was perhaps exaggerating when it said "the number of mortgages approved for house purchases slumped to an all-time low." It would be a surprise if the figure had not been lower in, say, 1914 or 1939. Yet the point was well made that, compared to a year ago, fewer than half as many people are buying. According to the BBA, "only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders." Scant consolation when there are 15 sellers for every buyer.
Bank of England Governor Mervyn King was slightly less gloomy than usual during his Q&A session at the parliamentary Treasury Committee. He repeated his story about inflation rising above 4 per cent by the end of the year but was evasive about what might happen to interest rates. The media and the market were left guessing and failed to come up with any firm conclusion.
The best thing that happened to the Yen was the sharp fall in global equity prices towards the end of the week. As investors rediscovered their fear of risk they sold higher-yielding currencies and bought the Yen. Whether this was actually to offset short positions or simply a Pavlovian reaction is beside the point. In times of panic the Yen goes up.
Otherwise there was little to pitch at. Unemployment remained steady at 4 per cent. Although overall household spending continued to decline retail trade was steady in May. There was positive news - at least for the Bank of Japan and the Yen - on the inflation front: Headline CPI was up by 1.3 per cent in the year to May. Unfortunately the entire increase was driven by food and energy prices. With those two stripped out of the calculation prices were flat.
There is no evidence yet to convince the BoJ that interest rates need to go above 0.5 per cent when its policy committee meets in a fortnight's time. The Bank of England's "uncertainty" about what to do means that Sterling interest rates are also probably on hold for the time being. The only lesson to learn from last week's activity is that risk-aversion has not disappeared. When it rears its head the market is still ready to load up with Yen, if only out of habit.
Sterling's failure to breach the technical resistance at ¥214 suggests that upward progress will not be easy. Buyers of the Yen should hedge, buying t least half their requirement forward.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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