Japan’s embattled Prime Minister Taro Aso has called a snap general election for August 30, a ruling party official told reporters Monday, after the ruling coalition suffered a major loss in Sunday’s Tokyo metropolitan assembly election.

Japan Liberal Democratic Party (LDP) secretary-general Hiroyuki Hosoda said a preliminary decision had been made to hold an election on that date and the ruling bloc has not voiced objections to going to the polls under Aso’s leadership.

LDP legislator Shuzen Tanigawa confirmed that Prime Minister Aso will dissolve Japan’s national Diet or parliament July 21 and call national elections for August 30.

“People of Tokyo said no to both local government and national government,” the leader of the Democratic Party of Japan (DPJ) , Yukio Hatoyama, said on the latest poll results, addding: “To dissolve the lower house and go to the people is the only thing available to Prime Minister Aso.”

The opposition DPJ became the leading party in Sunday’s Tokyo metropolitan assembly election, after it secured 54 seats out of the total of 127, compared with 38 seats of the LDP. The New Komeito party won 23 seats, making the ruling bloc’s total seats 61–three short of the 64 needed to secure a majority.

The Japanese Communist Party secured eight, while Tokyo Seikatsusha Network won two and other two seats went to independents.

Before the election, 48 assembly members belonged to the LDP, 34 to the DPJ, 22 to New Komeito, 13 to the Japanese Communist Party and four to Tokyo Seikatsusha Network. Four other assembly members were independents and two seats were vacant.

Aso’s leadership ability was challenged after a series of ministerial resignations exerted pressure on the government, with some LDP legislators asking him to step down.

Japan’s Nikkei average slipped 0.5 percent Monday on caution ahead of upcoming corporate earnings releases, though the market’s losses were limited as the yen pulled back from five-month highs against dollar. The benchmark Nikkei fell 50.52 points, or 0.5 percent, to 9,236.76 after an eight-day slide which took it to a seven-week low on Friday. The broader Topix fell 0.3 percent to 869.65.

Analysts said there was limited impact from the big defeat for Japan’s ruling LDP in Sunday’s Tokyo poll, which is seen as a bellwether for the upcoming general election. The defeat is LDP’s fifth straight loss in local elections as Aso abandoned pledges to cut spending and reduce the world’s largest public debt.

TOKYO - Japan’s exports showed modest signs of recovery in April with shipments to China declining at a slower pace than a year earlier, reinforcing market views that the worst of the global slump in trade may be over.

Exports rose for a second month in April compared to the previous month, government data showed on Wednesday, an encouraging sign as Japan’s economy recovers from its worst ever contraction.

Shipments to China, Japan’s biggest trade partner, fell 25.8 per cent in April from a year earlier, narrowing the margin of decline for a third straight month and suggesting Beijing’s US$585 billion stimulus package is having an effect.

‘There are signs of recovery in exports due to progress in inventory correction overseas and a pickup in shipments to China,’ said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute.

‘Exports are likely to recover gradually from now on and the Japanese economy is expected to follow suit.’

Japanese exports fell 39.1 per cent in April from a year earlier, against a median market forecast for a 41.9 per cent fall.

On a seasonally adjusted basis, exports rose 1.9 per cent in April from March.

The pace of annual declines in exports of cars and electronic parts is slowing overall, showing that trade is improving, a Ministry of Finance official told reporters at a briefing.

As for shipments to China, those of chemicals used to make plastics, mobile phones and digital cameras rose in April from a year earlier as China’s stimulus package filtered through the economy.

Ready to raise output Japanese manufacturers have shown signs they are ready to increase production after a collapse in global trade last year forced them to slash output.

While sentiment has begun to improve in Japan’s largest Western markets, some analysts were cautious on whether global demand will recover enough to prompt Japanese companies to go beyond restocking after a heavy run-down of inventories.

‘China’s economy is doing better than other countries mostly because of government spending,’ said Takeshi Minami, chief economist at Norinchukin Research Institute.

‘But like Japan, China’s economy is driven mostly by exports, so unless we see a stable pickup in global demand its recovery will be limited. That bodes ill for Japanese companies.’

Exports to the United States fell 46.3 per cent in April from a year earlier, smaller than a 51.4 per cent drop in March, although automobile shipments continued to fall sharply.

The trade balance logged a surplus of 69.0 billion yen (US$728.6 million), compared with the median estimate for a 57.5 billion yen shortfall.

The Nikkei average gained 1.2 per cent early on Wednesday, tracking the previous day’s jump on Wall Street.

Blue-chip exporters such as Sony Corp were buoyed as the dollar edged further above 95 yen, a level many exporters have based their earnings forecasts on for the financial year to next March.

Japan’s government raised its assessment of the economy for the first time in three years on Monday, saying the pace of deterioration in exports and industrial production are slowing.

The government joined the Bank of Japan, which also upgraded its view of the economy this month for the first time in almost three years.

Japan’s economy shrank at a record 4.0 per cent in the first quarter as domestic demand and investment buckled, and some economists say a recovery depends on whether final demand picks up overseas.

The Bank of Japan (BOJ) signalled on Friday that the worst of the global crisis may be over for the world’s second-largest economy, which shrank at a record pace in the first three months of the year.

After a two-day policy meeting, the central bank said it had upgraded its view on the ailing economy, saying conditions were still deteriorating but noting that steep declines in exports and output appeared to be levelling out.

Such an upgrade by the BOJ could indicate that it may pause in expanding the range of unconventional policy steps it is considering to revive the economy, such as buying of corporate debt. But it could face pressure to do so again if the economy does not recover as it hopes.

The BOJ board also voted unanimously to keep its overnight call rate unchanged at 0.10 per cent.

BOJ Governor Masaaki Shirakawa will hold an embargoed news conference later in the day, with his comments due out some time after 0715 GMT.

Since last October, the BOJ has been buying risky assets such as company bonds to ease tension in markets. It has also decided to buy shares from banks to reduce banks’ exposure to stock market fluctuations.

The BOJ said on Friday it would accept US, UK, German and French sovereign debt as collateral it takes for its market operations, which would give banks more flexibility in fund raising.

Still, analysts say there is little immediate need for central banks to expand the collateral they accept because strains in global money markets have eased considerably.

Highlighting the woes Japan is facing, data showed this week that the economy shrank 4.0 per cent in January-March, as a plunge in demand for Japanese-made cars and flat-screen TVs prompted firms to stop capital spending.

In the past few months, some signs have emerged that the global economy is stabilising, but it is far from clear when it will begin growing again or how strong any recovery will be.

The BOJ said last month in its twice-yearly economic outlook report that the Japanese economy would slowly recover later in the year in line with an expected pickup in the global economy.

While BOJ officials have been relieved that the freefall in output is subsiding, they remained cautious over whether the recovery will be sustainable.

Masaaki Shirakawa, the bank’s governor, said on Wednesday that the uptick was mainly due to companies replenishing depleted inventors rather than a sustained recovery in consumer spending, which is key to turning the global economy around.

Recent strength in the yen has added to concerns that exports will remain under pressure, but Japanese Finance Minister Kaoru Yosano said on Friday that Japan is not considering intervening in currency markets right now.

Japanese policy makers have remained calm so far even as the dollar fell to a five-month low on concerns that the United States is at risk of losing its top credit rating after Standard & Poor’s said it could downgrade Britain’s triple-A credit rating.

Japan has not intervened in the currency market since March 2004, after a 15-month-long, 35 trillion yen (US$371 billion) selling spree aimed at preventing the currency’s strength from snuffing out an economic recovery.

The Japanese economy is shrinking like a two-dollar t-shirt in the dryer.

Plenty of scary numbers there – like GDP shrinking at a 15% annual pace. But no matter. The analysts expected worse…so the yen’s actually gaining value against the dollar.

And remember Britain? That wee island where the people haven’t yet realized that their days of global empire have long since past…and left them as one of the most broken, indebted nations on the face of the Earth? Yeah, their currency’s rallying as well…

“The GBP/USD rallied to a 5-month high yesterday…officially ending the yoyo market of alternating up and down days,” says Cornelius Luca, editor of The Money Trader.

“The major source of pressure is the selling pressure in EUR/GBP. The cross is only pips away from sinking to a new low for the down move since March 19th. The key level is a .8749, which is 50% retracement of the uptrend between October and December.”

The EUR/GBP is now hanging out around .8825 after a bounce at .8800.
“With the dollar on the ropes we see less adversity to risk. The Eurozone data showed increased confidence via the ZEW survey, even though it was the cable that gained, not the euro.”

The reasons were clear for FX traders and investors: the Greenback would be strongly hit by the financial turmoil the withdrawal of capital flows from the US. The global deleveraging has generated the liquidation of carry trades that were sellers of Japanese Yens for several years. As the risk aversion was soaring, the JPY has been massively bought back against all the other currencies.

Consequently the USDJPY fell from 110 to 87 in 4 months, from mid-August 2008 to mid-December (points A and B on the chart). It’s a decline of 21%. It’s nothing compared to losses occurred on commodities or stocks markets but on the FX market it’s a huge decline in such little time.

Click to enlarge

KS: The flows back to Yen from the ‘carry trade’ have surely dried up now, given the big rally in the USD since December?

GA: It also confirms the correlation between equity indices and Japanese Yen: when risk appetite rises, the JPY falls. Oppositely, when the risk aversion rises, the JPY rises too.

A pull back price action drove the currency pair down to 87 once again (point C) and immediately bounced back. It draws a classical trend reversal pattern, the double bottom (built by points B and C).

A new bullish momentum built up in late January/early February and gained some momentum when it broke above the resistance line (red line) that was made by higher lows posted between last August and last January.

KS: So, where will the Yen go from here?

GA: The momentum should be over now. The price action has been failing to break above the 50% Fibonacci retracement ratio (point D) of the bearish trend occurred between points A and C.

The MACD confirms that a correction on the downside is expected now. It peaked to extreme high levels, has just curved downward and crossed below its signal line. Same thing with the RSI that crossed below the overbought level two weeks ago.

Currently trading around 98, the USD/JPY is likely therefore to correct towards 95 in a first time (previous high that would become a new low), then to 92.50.

The recent fall in the value of the Australian Dollar, while painful for Australians looking to travel overseas, has proven popular with many traders whose trading accounts are denominated in US Dollars.

From a traveller’s perspective, every cent that the Australian Dollar falls means less spending money in their pockets when they convert their Australian Dollars into US Dollars.

However, the sharp falls have eased the pain of those traders watching their US Dollar accounts erode in value with the strengthening Australian Dollar.

Imagine you were a trader who wanted to trade options on the US market. You open an account with a US Broker in 2002 and send over $A10,000 to fund your account. With an exchange rate of 0.5000, you now have $US5,000 in your account.

Now imagine you are a conservative trader and over those 6 years you managed to double your trading account. Your trading account is now $US10,000.

Now you decide to bring the money back to Australia. However, it’s 2008, and the exchange rate is now 0.9800 (98 cents). Suddenly, you need 98 US cents just to buy 1 Australian Dollar, whereas six years ago, you only needed 50 US cents.

Now your $US10,000 – which was double your initial investment - is only worth $A10,204. Nearly all of your gains have been wiped out by the exchange rate fluctuations. Can you see the importance of managing your currency risk?

Chart 1 below shows the weekly bar chart of the Australian Dollar (FXADUS in ProfitSource)

Chart 1

click to enlarge

As you can see, it is not just Currency Traders who are faced with the risks associated with changes in the exchange rate. Of course, had the trader waited until October to bring their US Dollars back to Australia, the exchange rate would have been much more favourable for them.

Anyone with any exposure to overseas currencies, whether through their trading, their travel plans, or business transactions needs to manage their currency risk.

So how can we go about it?

The simplest way to lock in the exchange rate today is to open an FX trading account. Let’s say we have some US Dollars sitting in a bank account in the United States.

If the Australian Dollar rises in value, the US Dollars will fall in value, meaning less Australian Dollars should we decide to bring the money to Australia. To lock in the current exchange rate, we can open an FX hedge by opening a currency position.

In any FX transaction, we are always buying one currency, and selling a second currency.

So in this case we would open a position that would buy Australian Dollars, and sell enough US Dollars to cover the money in our US bank account.

As long as there is enough money in your FX trading account to cover the margin on the trade, you will be able to leave this hedge open until you are ready to bring your US Dollars back to Australia. If Australian interest rates are higher than US interest rates, you can even be paid interest on your position, in what is called a “carry trade”.

If you have US Dollar exposure and you don’t check the exchange rates very often, it can be a good idea to hedge your position and lock in your exchange rate, to remove the possibilities of any nasty surprises.

There are other methods for locking in an exchange rate using Forward Exchange Contracts and options, however that is a subject for another article.

* Dollar rises against yen after U.S. durable goods

* Housing, sentiment data to come

* Oil recovery, equities remain in focus (Adds comments, byline, updates prices)

By Wanfeng Zhou

NEW YORK, July 25 (Reuters) - The dollar rose against the yen on Friday after a government report showing an unexpected rise in durable goods orders eased worries over the U.S. economy.

The solid reading lifted sentiment on stocks and spurred a recovery in risk appetite, putting pressure on the low-yielding yen. The dollar also pared some of its losses against the euro.

Durable goods orders were up 0.8 percent in June, after a revised 0.1 percent gain in May, the Commerce Department said on Friday. When volatile transportation orders were excluded, orders climbed 2 percent last month, the sharpest rise since December. For details, see [ID:nN24332112].

“All in all, a strong piece of data for the U.S., in contrast with fresh signs of weakness in Europe and the UK,” said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. “I think stocks will like it, yen crosses will too, and the dollar also.”

In early trading in New York, the dollar rose 0.3 percent to 107.72 yen

The euro traded 0.2 percent higher at $1.5700 <EUR=>, still roughly 3 U.S. cents below a record high set in mid-July.

The euro also jumped 0.5 percent to 169.05 yen <EURJPY=>.

MORE U.S. HOUSING, CONSUMER DATA

Despite getting a boost from the much-stronger-than-expected durable goods orders data, sentiment on the greenback remained cautious as market participants awaited more U.S. data later in the day, including new home sales for June and a consumer sentiment poll for July.

Against a basket of six major currencies, the dollar remained 0.2 percent lower at 72.791, retreating from Thursday’s two-week high .DXY.

The Commerce Department’s housing data will be closely watched after disappointing news on existing home sales released on Thursday sent the dollar down sharply against the yen.

But some analysts said that the scope for weak U.S. data to hurt the dollar was limited as a fairly negative U.S. picture is already priced in, and euro zone economic data has also been coming in on the weak side.

“The expectations are for lower readings across the board, but the impact of FX trade may depend on the degree of the decline,” Boris Schlossberg, senior currency strategist at DailyFX.com, said in a research note.

“With markets already so preconditioned to bad economic news from the U.S., the greenback may not weaken much further unless the data shows substantial deterioration from the prior month.”

The euro edged higher on Friday despite figures showing a slowdown in money supply growth [ID:nFAE002362].

The single currency hit a two-week low against the dollar on Thursday after data showed German business sentiment suffered its biggest drop since September 2001, while euro zone PMIs pointed to contraction in both the services and manufacturing sectors. (Additional reporting by Gertrude Chavez-Dreyfuss in New York and Naomi Tajitsu in London, Editing by Jonathan Oatis)

* U.S. consumer sentiment rebounds from 28-year low

* Durable goods, housing top consensus

* Oil prices, equities remain in focus (Recasts; updates prices, changes byline)

By Vivianne Rodrigues

NEW YORK, July 25 (Reuters) - The U.S. dollar rose against the Japanese yen on Friday, after a trio of better-than-expected data injected a dose of optimism aboutthe U.S. economy.

The upbeat readings on U.S. durable goods orders, new-home sales, and a rebound in consumer sentiment from a 28-year low allayed some of the recent gloom over the economy and financial markets, sending stocks higher and giving a boost to the beleaguered U.S. currency.

“This is perhaps the best we could have ever hoped for amid the current economic conditions,” said Michael Woolfolk, senior currency strategist at The Bank of New York Mellon in New York.

“It flies in the face of the pessimists out there calling for a recession. It’s just simply not reflected in the numbers,” he added. “The dollar rally gets a strong green light to continue buying.”

In late trading in New York, the dollar rose 0.5 percent to 107.87 yen <JPY=>, after climbing as high as 107.94 yen, slightly below a one-month high of 107.98 yen set on Thursday, according to Reuters data. 

The euro traded 0.1 percent higher at $1.5693 <EUR=>, roughly 3.0 cents below a record high set in mid-July.

Against the yen, the euro jumped 0.6 percent to 169.34 yen <EURJPY=>.

But on the New York Board of Trade’s U.S. dollar index .DXY of major currencies the U.S. dollar remains trapped in its range of the past four months, after seeing a big slide last year.

U.S. durable goods orders were up 0.8 percent in June, after a revised 0.1 percent gain in May, the Commerce Department said Friday. For details, see [ID:nN24332112]

Separate data showed sales of new homes in the United States fell to a 530,000 annual pace last month, against market expectations for a drop to a 500,000 rate, while consumer sentiment recovered unexpectedly in July after falling in June to the lowest level since the early 1980s. [ID:nN25494864] [ID:nN25487506]

OIL, EQUITIES IN FOCUS

Gains in U.S. equities and a continued drop in oil prices to a seven-week low on Friday further lifted sentiment toward the dollar. U.S. crude futures last traded down 1.7 percent, at $123.37 a barrel.

“We are really seeing a couple of different factors shape up: oil dropping, equities rally and clearly the good data, which should support at least a minimum dollar rally to yesterday’s lows (on euro/dollar),” said Greg Salvaggio, vice president of trading at Tempus Consulting.

More good news on the mortgage sector added to dollar strength. The U.S. Senate voted on Friday to limit debate on a bill aimed at shoring up both the housing market and mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), paving the way for a final vote that is expected on Saturday.

But some analysts cautioned that the impact on the dollar from Friday’s positive data may be limited.

“The follow-through will be distinctly limited,” said Alan Ruskin, chief international strategist at RBS Global Banking and Markets, in a research note.

“The next real lead on the economy comes from the ISM numbers, and by far the most important data — nonfarm payrolls — in a week,” he said.

The euro hit a two-week low versus the dollar on Thursday after data showed German business sentiment suffered its biggest drop since September 2001, while euro zone PMIs pointed to contraction in both the services and manufacturing sectors. (Additional reporting by Wanfeng Zhou and Lucia Mutikani in New York)