Japan’s reliance on exports to drive its economy is finally being exposed for the equally large risk it poses. July’s merchandise trade surplus fell a whopping 21.1% YoY to JPY 671.2bn. Exports rose 11.7% but this was more than offset by the surge in imports by 16.9%. This is the first time in nine months that the surplus has contracted on an annual basis and this clearly indicates the slowdown seen over the past few months with not only U.S. demand drying up, but also now the rest of the world. Pretty much as I have been suggesting over the past couple of months, on top of reduced demand by the U.S. particularly in construction machinery and autos which have lost a great deal of momentum recently we are now also seeing a slowing in the pace of demand from both Europe and Asia. The pace of growth in exports to Europe declined to 13.1% from 16.3% and to Asian countries the decline was to 20.6% from 22.6%. The current turmoil could well exacerbate the impact which could have Japanese GDP declining into negative territory with employment hit and a subsequent reduction in consumer demand. At the moment Fukui still appears hell bent on hiking rates but one can only wonder whether the economy will be able to absorb this. Perhaps the reduction in consumer demand has already begun. In June supermarket sales fell by -2.8% YoY to mark the 19th consecutive month of declines. The result was worse than May’s decline which was by only -1.5%. It is really difficult to see where the domestic demand that the BOJ and government so confidently predict is going to come from. Remember that sales were down in June but we have had further bad numbers since then. The June Australian Westpac Leading Index registered a +1.0% rise in June and up 7.1% in the 12 months to June. Westpac noted in their statement that the leading index has begun to level off over the past few months and project that Australian economic growth will probably moderate over the next three to nine months. The following economic releases are due today: June
Euro-zone Current Account
Euro-zone Industrial New Orders (MoM) +2.0%
Euro-zone Industrial New Orders (YoY) 12.4% August
U.K. CBI Industrial Trends: Total Orders -3.0
U.K. CBI Industrial Trends: Export Orders -8.0
U.S. MBA Mortgage Applications (17th) There isn’t really too much to add from yesterday with such tight range trading. Suffice it to confirm that I still have a preference for one last rally for the Dollar against the Europeans and one final decline against the Yen before this initial correction is complete. The only other mild alternative is a day or two of consolidation before these last moves occur so it will be useful to be aware of where these may stall the first moves but as of now I really do feel we shouldn’t see any deeper pullback than those we saw into Monday. I still feel the Aussie has found a low and while a correction is now likely the main direction is once again higher. Same too for Dollar-Canada as well. The bounce from the 1.0530 low has extended and again, there is risk of a correction, but the underlying direction does appear higher. Note important support and resistance areas: USDJPY EURUSD USDCHF GBPUSD
Res: 115.49-78 1.3519-45 1.2178-13 1.9935-60
Res: 114.78-91 1.3480-05 1.2088-01 1.9847-67 Spt: 113.90-98 1.3396-30 1.2011-45 1.9760-70
Spt: 112.70-06 1.3359-75 1.1965-93 1.9684-16 | 
