The USD/JPY is weakening despite disappointing Japanese data combined with positively mixed U. S. numbers. This combination of economic data would normally be a positive catalyst for the USD/JPY due to the outperformance of the U. S. economy vs. the Japanese economy. Furthermore, the added signs that the global economic recovery is spreading would usually lead investors to sell the Yen and snatch up riskier currencies. However, the trading today seems to be more focused on the governmental election taking place in Japan. It seems the LDP will lose power for the first time in 50 years. Investors are speculating that the DPJ’s more conservative fiscal approach may result in a stronger Yen. Hence, we see the Yen appreciating not only against the Dollar, but also against the Pound and the Euro as well. Furthermore, even though we’ve received some positive economic data from the West, the consumption-oriented numbers left something to be desired.

U. S. and British consumer confidence readings showed little improvement while U. S. Unemployment Claims and Personal Spending remain at discouraging levels. Furthermore, Core Durable Goods Orders came in two basis points below analyst expectations earlier this week. Lastly, China has decided to reign in its liquidity to try and deflate asset bubbles. The combination of these economic developments does not bode well for the demand for Japanese exports. Hence, Japan’s struggling economy may not have much relief in sight. Japanese consumer prices are sinking while household spending declines, both are ramifications of rising unemployment.

Negative economic data and a shift in governmental power seem to have investors favoring the Yen. The USD/JPY is trading back below our 1st tier and 2nd tier uptrend lines, a risky move technically. All of the sudden the USD/JPY is reconsidering a test of July lows. Meanwhile, the USD/JPY has several difficult downtrend lines bearing overhead, telling us momentum is turning in favor of the bears again. Japan will release more important economic data to kick off the next trading week, including Prelim Industrial Production, Retail Sales, and Average Cash Earnings. The combination of a governmental election and more key economic data should result in rising volatility. Additionally, investors will receive important economic data from the U. S., China, and the EU. Therefore, investors should fasten their seatbelts and keep an eye on the shifting fundamentals.

Present Price: 93.52

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