THE TAKEWAY: Japanese leading economic index declined for third consecutive month > Market volatility has an opportunity to return as key event risk ahead > Yen unchanged
The Japanese Yen was relatively unchanged versus the U.S. Dollar as the New Composite Index of leading indicators declined to 93.2 in June, down from 95.2 in May, marking the third consecutive month of economic weakness. The index measures changes in stock prices, machine orders, inventory valuations and other activities that might lead the general business environment. Interestingly, the Nikkei 225 which is Japan’s benchmark equity index, topped on March 28 then subsequently declined nearly 20 percent before reaching a bottom on June fourth. The equity index has since recovered half its losses, yet the decline likely accounts for a significant portion of the Leading Index’s deterioration. Furthermore, machine tool orders have also been in decline since March of this year when the measure too found recovery in June.
Deteriorating economic conditions are not disparate throughout the global economy as Europe has been muddling through their debt crisis and Chinese growth, at roughly 7 percent, is well below average pace. However, The Yen has recently declined in value over the last few trading days which could help provide support for increasing export activity.
Both currency and equity markets have been extremely quiet in August. Volatility measures have been almost non-existent as well. Japan’s currency is considered a go-to safe haven by investors when market volatility increases. Looking further into the week volatility has an opportunity to return as Spain is scheduled to sell government debt on Tuesday, German manufacturing data will print Thursday, and Greek and German Prime Ministers will meet in Berlin Friday.
USD/JPY, 15 Minute Chart