Dollar Losses Extended

The U.S. dollar’s losses have accelerated.  The key drivers are not domestic but emanate from Europe and Japan.  Evidence continues to accumulate that points to a moderate recovery in the U.S. economy. The JOLTS data showed job openings are at new cyclical highs. The wholesale inventory data was also positive. Tomorrow the U.S reports May retail sales. It is expected to be among the strongest reports in many months.  

The dollar approached JPY126 at the end of last week.  It had established a near-term base near JPY123.80.  It finished the North American session near JPY124.30. Comments by BOJ’s Kuroda knocked it through its 20-day moving average, for the first time since May 18 (~JPY122.70) to about JPY122.45.  We had detected some shift in Japanese official rhetoric toward more cautionary views of the yen though admittedly comments in the press were not always consistent.  

Nevertheless, Kuroda’s revelation the he does not see more yen weakness on a real effective basis (REER) spurred the immediate sell-off.  The range over the last several hours has been roughly JPY122.50-JPY123.15. This could mark the North American range as well.   Japan’s economic news was also favorable. Machine tools (part of capex) rose 3.8% in April. The Bloomberg consensus expected a 2.1% decline.  Japan’s measure of producer prices also rose a little more than expected. The 0.3% increase in May follows a 0.1% rise in April. The consensus expected a 0.2% rise. 

Separately, we note that the Nikkei failed to close yesterday’s gap and edged lower, filling an earlier gap created in its run-up in mid-May. Two Japanese corporate acquisitions caught our attention. Tokio Marine is bought US insurer HCC (HCC) for $7.5 bln (cash), which is the largest foreign purchase in this sector. Panasonic Healthcare will buy Bayer’s (BAYZF) diabetes devices holdings for about one billion euros.