JPY: CPI and trade figures in focus this week - BBH

Analysts at BBH suggests that the Japan reports December trade figures and CPI which will garner maximum investors’ attention this week.  

Key Quotes

“There is a strong seasonal component to Japan's trade balance.  Over the past 20 years, the December trade balance has not improved over November only three times.  Exports appear to have risen on a year-over-year basis for the first time since September 2015.  Imports are slowly recovering as well.  Excluding food and energy, Japan's CPI is expected to fall back below zero for the first time since August 2013.”  

“The drivers of the yen seem clear, and it is not the domestic economy per se.  Rather the dollar-yen continues to be driven by two attractors - US yields and equities.  On a purely directional basis, the correlation between US 10-year yields and the dollar-yen exchange rate is above 0.95 over the past 60 and 100 days.  On a percentage change basis, the correlation is at the upper end of where it has been since the middle of 2014.  The correlation on a directional basis between the Nikkei and dollar-yen and the S&P 500 and dollar-yen are also elevated.  On a percentage change basis, the correlations are not nearly as strong, of course, but are at or near multi-month highs.”