In this video, Yvette Roper of TradingFloor.com interviews Andrew Robinson, Market Analyst for Saxo Capital Markets in Singapore aboutthe state of the Japanese economy ahead of a slew of data and amid speculation about another round of easing by the Bank of Japan already in October.
Andrew comments on the continued strengthening of the Japanese yen of late against the euro and more so the dollar and the impact of the ongoing island dispute between Japan and China.

Data out of Japan at the end of this week includes: PMI, Unemployment, CPI, Industrial Production, household spending and retail trade. The reports of most interest are PMI and CPI. The question according to Andrew concerning PMI is: how low can it go? The PMI figure has been in negative territory since May. And in terms of CPI everyone is wondering if the Bank of Japan’s 1 percent inflation target is a pipedream or feasible, he says.

In terms of other data from Japan this week any surprises to the upside, particularly in industrial production or retail trade will be seen as a positive, while numbers that are worse than expected won’t create that many waves due to the overall slowing economic backdrop, says Andrew.

With two BoJ meetings in October the market is speculating that we might see another round of easing towards the second half of next month. Regarding physical intervention by the Bank of Japan though it’s unlikely, says Andrew. The last time this happened was in November last year when dollar-yen was in the low 75s.

Andrew believes that more talk rather than action by the BoJ is most likely. I think we will see a step-up in the rhetoric that we are hearing from the Bank of Japan because obviously words are lot cheaper than actual cash. Furthermore, in terms of levels he does not see markets getting too worried until USDJPY drifts below the 77 mark or even until it hits the 76 level.

Meanwhile, Japanese companies continue to suffer from the China-Japan dispute over the islands known as Senkaku in Japan and Diaoyu in China. Carmakers are halting production or scaling it back in China and the big question is who will come off worse from protracted tensions and trade relations turning sour, says Andrew. Andrew guesses that the Japanese will suffer the most.

Regardless, diplomatic processes are being escalated to try and prevent the issue getting out of hand but it in the normal Asian manner it is difficult to see how they can reach a favourable solution for both parties without either side losing face. I do feel we will see a diplomatic solution before the trade war escalates into something disastrous though, adds Andrew.

See more of Andrew's Asian market commentary on TradingFloor.com