Fundamental Forecast for Japanese Yen: Neutral

- Retail Sales fell 0.3% in June and 3.0% from a year ago, declining for the 10th straight month
- Japanese industrial production rose 2.4%, the fourth straight improvement, PMI Moves to expansion at 50.4
- Unemployment rose to a six year high of 5.4%in June
- Consumer Prices fell at a record pace in June to -1.8% from -1.1%

The Yen was mixed to end the week as it rallied against the dollar on the better than expected GDP figures and braid based greenback weakness. However, it would end the week unchanged against the Euro and weaker against the pound as risk appetite continues to weigh it against riskier currencies. Equity markets have show no signs of abating but they are near significant resistance levels and with the U.S. employment report scheduled next week a pull back is possible. Meanwhile, Japanese fundamental data continues to point toward a slow recovery as unemployment rose to a six year high of 5.4% signaling that gains in domestic growth will be challenging going forward. Consumer prices falling at a record pace of -1.8% will continue to squeeze corporate profits and limit the potential for a Japanese recovery. Optimism from the economy can be derived from industrial production rising for a fourth month by 2.4% and PMI returning to expansion levels, which could be a sign that global demand is improving. There were some signs of hope domestically with improvements in small business confidence and household spending.

BoJ member Tadoa Noda stated this week that central bank shouldn’t end their emergency credit programs prematurely as it could limit the scope of a recovery. The central bank this month extended the credit-support programs of buying corporate debt from banks and providing them with unlimited loans to Dec. 31 from Sept. 30 as lending conditions remain frozen. The upcoming economic docket is relatively light with labor cash earnings and leading and coincident reading. The forward looking gauge for the economy is expected to rise to its highest level since November as the outlook continues to improve for the economy. However, price action will most likely be dependent again on risk sentiment which could be limited with US NFP’s looming. The USDJPY has been in a downward trending channel and which was kept intact with Friday’s sell off. Trend line resistance is near 96.15 which is being reinforced by the 38.2% Fibo of 110.69- 87.14. Support may be found at the 20-Day SMA at 94.19 and 93.09-the 7/22 low.

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