Europe Hurts Japan Exports
The impact of the Eurozone debt crisis is now having a pronounced effect on Japan’s export industry. Exports to the EU fell by -25.1% y/y while those to China dropped -11.9% y/y. The trade deficit in July was wider than the consensus expected, but the yen managed to hold its ground nonetheless as declining US Treasury yields helped offset the damage. Meanwhile in Europe, Greece’s Prime Minister Samaras made the case in the German media for why Greece should be allowed more time to reach its reform targets. It seems the idea has already won over some converts in the German parliament. On Tuesday, German lawmaker and the ruling CDU party’s budget spokesman, Barthle, said “small concessions” are possible for Greece. He added that such options as adjusting the interest and maturity of Greek loans must fall within the existing programme to be able to pass in the Bundestag. Meanwhile in the US, Atlanta Fed President Lockhart (currently an FOMC-voter) cautioned against employing monetary policy “too aggressively” to address economic problems that can be resolved “only” by fiscal reforms. He went on to say that US economic data have been “a little firmer” since he last expressed support for more Fed action. FOMC minutes from the Aug 1 policy meeting are due later today, and we expect to hear some dovish overtones – especially given the Fed shifted to an explicit easing bias at the meeting, pledging to “provide additional accommodation as needed to promote a stronger economic recovery”. As such this suggests scope for additional USDJPY downside later today, and the focus on Fed Chair Bernanke’s speech at Jackson Hole on Aug 31 is likely to intensify.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank