US dollar climbed against the Japanese yen on Tuesday, following the disappointing report on Japanese industrial production, while investors focused on the policy meeting of the Federal Reserve Bank, scheduled to begin today.
USD/JPY reached a session high at 98.45 at 4:15 GMT, after which the cross consolidated at 98.22, up by 0.26% for the day. Support was likely to be found at June 26th low, 97.24, while resistance was to be encountered at July 26th high, 99.36.
An official report on Tuesday showed that Japanese industrial production dropped more than projected in June on a monthly basis. The indicator fell by 3.3% in June, while estimates pointed a smaller drop by 1.5%. Junes result opposed the 1.9% climb, registered in May. This was the first monthly drop in five months. In annual terms, industrial production decreased by 4.8% in June, again mismatching projections of a lesser drop, by 2.9%, and deepening the slide in comparison with May, when production fell by 1.1%. Automobile production decreased alongside the lower export towards countries in Europe. Chip production registered weaker results as well, because of the diminished foreign demand by cell phone manufacturers.
“We had very disappointing data for Japan’s industrial production in June and that’s weakened the yen,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt, cited by Bloomberg. “For now the Bank of Japan will wait and see how what they’ve done so far works, but if inflation doesn’t pick up then they might implement some more measures. The yen will weaken further.”
At the same time, Japanese households spent less than expected in June. Spending showed a drop by 0.4% during the month on annual basis, marking the second monthly decrease, following the 1.6% decline in May. Weaker automobile sales and lesser number of insurance contracts contributed the most to the total result, neutralizing the recent household spending recovery, which was due to national holidays.
In addition, Unemployment Rate in Japan slipped to a four-year low in June, standing at 3.9%, down from 4.1% in May. In June the indicator reached its lowest point since October 2008, when unemployment rate came in at 3.8%. The number of employed people diminished by 10 000 in June to 63.02 million, compared to May, marking the first drop in three months. On the other hand, the seasonally adjusted number of unemployed people in Japan declined sharply, by 5.9% in June to 2.54 million, which was the second consecutive month of decrease.
Meanwhile, the greenback found certain support on Monday, after the release of pending home sales report from the United States, which added to optimism over the possible short-term pare back of Federal Reserve’s Quantitative Easing. According to yesterday’s data, pending home sales decreased at a smaller than projected pace in June, by 0.4% compared to 1.0%. The index jumped by 10.9% in June this year, compared to June 2012.
Elsewhere, the Japanese yen was trading lower against the euro, as EUR/JPY cross added 0.34% to 130.37 at 8:25 GMT. GBP/JPY pair was also on positive territory, advancing 0.18% to 150.56 at 8:26 GMT.