Yen became the worst performer in Asian session today after a series of fundamental considerations prove to be unsatisfactory and the need for safe haven asset among investors diminished further.

Japanese Yen became the worst performer in Asian session today after a series of fundamental considerations prove to be unsatisfactory and the need for safe haven asset among investors diminished further.

 

Japan Growth Slowed

Japan's economy seemed unable to withstand April tax hike. Data on the country's 2014 Q2 GDP released earlier today showed a -6.8% annualized growth compared to 6.1 advance in the first quarter of 2014. Quarter-to-quarter, the economy contracted as much as 1.7% after expanded 1.6% in the previous quarter. Overall, it is actually within expectation, with analyst having predicted a 7.1 annualized contraction, and expected 1.8 shrinkage quarterly. However, records showed that the current contraction is the worst since the first quarter of 2011 when Japan was hit by a series of natural disaster.

JapanJapan GDP Growth Annualized Q1 2010- Q2 2014


The April tax hike was a part of PM Shinzo Abe plan to reignite Japan economy, but many have warned of the danger of such risky endeavor. The emergence of these worrisome data underline the challenges and dilemmas faced by Japan in its mission to get out of prolonged recession. To boost inflation and spur growth, the government planned to hike consumption tax gradually; the first 2% hike is in the last April, while the second 2% is planned for 2015. The current slump, however, made it necessary for the government to take a more careful approach. Japan Economy Minister, Akira Amari, signalled that further policies will have to wait for an improved economic data, although he remains sure that the economy will pick up again.

Another fundamental that will influence the Japanese Yen for the next few days is the Bank of Japan minutes. There is no particularly new surprise from the BoJ, with the central bank reiterated its commitment to continue the current policies and kept insisting that the country's economy is recovering moderately. 

 

Appetite For Safe Haven Diminished

With the absence of strong economic data, the safe haven currency stand solely on the ground of worldwide geopolitical tensions which slowly come undone this week. Consequently, USDJPY tend to move higher.

USDJPYUSDJPY in H4 Timeframe with EMA-20 (red), EMA-60 (blue), EMA-100 (magenta), and Fibonacci Retracement

In H4 timeframe, USDJPY flies above 100-day EMA, and multiple EMA-20 crossovers to the upside is detected ahead of the release of US retail sales data. Further weakening of the Yen could see the USDJPY to step into 103.0 area and beyond, creating new one month high record. On the other hand, disappointing US retail sales or highly explosive incident in Middle East might trigger investors to seek the Yen again.

Meanwhile, EURJPY lies dormant under 100-day EMA, signalling continued pressure on the Euro. The following chart indicates that the EURJPY is still in downtrend.

EURJPYEURJPY in H4 Timeframe with EMA-20 (red), EMA-60 (blue), EMA-100 (magenta), and Fibonacci Retracement

Latest development from the Eurozone reveals German weakening economy as the number one country in Eurozone got dragged through with the side effects of Ukraine conflicts. The pressure might be too much for investors, as it seems they still prefer the safe haven Yen rather than the risky Euro. The signals are good that the EURJPY will fall again to Fibonacci 23.6 level.