Japanese Yen Rises on Signs of Economic Recovery

The Japanese yen rose on Thursday on signs of economic recovery in Japan, following better than expected housing starts data. At the moment, the U.S. dollar lost 0.43% of its value to trade at ¥80.42, while the euro edged lower to ¥116.54, down 0.07%. The yen found strength in better than expected housing starts data. In May, Japan's housing starts were 6.4% above the level in May 2010. This represents a significant improvement on April's 0.3% and 3.5% predicted by most analysts. The latest data suggest Japan's reconstruction program is starting to kick in. Japan has been rocked hard by the earthquake/tsunami disaster. Its economy shrank in the first quarter of the year, as a result, and traders are hoping that the government's reconstruction plan can provide enough boost for the Japanese economy to make a strong rebound in the June quarter. Japan's manufacturing activity data, also released today, is less encouraging, however. In June, Japan's Manufacturing PMI fell slightly from 51.3 in May to 50.7 in June. Good news is that is spite of the fall, the June value still indicates expansion. The output part of the index rose from 51.5 in May to 52.7 in in June. At the same time, the exports component fell from 49.2 to 49. The data suggests that output is recovering following energy shortages and supply disruptions. Some traders might be worried that exports are not rebounding and are still below 50, which indicates exports are contracting. From the Asian-Pacific currencies, the New Zealand dollar also put up a good performance in today's trading. The Kiwi added value against the greenback and is following the euro rebound. At around 6:50 GMT, the greenback stood at 1.2067 (down 0.38%), while the euro traded around 1.7487, or the same as yesterday's close. The Kiwi was supported by an improvement in the country's business confidence. In June, New Zealand's business confidence rose to net 46.5%, up from 38.3 in May%. New Zealand is a major exporter of commodities and the record high commodity prices are spreading optimism throughout the economy. Like Japan, New Zealand was recently hit hard by natural disasters. It seems the New Zealand economy is putting the earthquake woes behind it, however. Traders who believe the economies of both New Zealand and Japan will slowly but surely keep recovering from natural disasters will be interested in the CurrencyShares Japanese Yen Trust ETF FXY and the WisdomTree Dreyfus New Zealand Dollar Fund BNZ. Other traders might be more cautious. The global recovery remains fragile and any sudden downturn in, e.g. Greece, might send the Western world back into recession. Another recession in Europe and in the United States would provide a lot of downward pressure on the commodity prices, which would hurt the performance of the Kiwi. At the same time, Japan's exports-driven economy would suffers as well as recession eats into the overseas demand for the Japanese products. Traders who find appeal in this scenario will be more interested in the ProShares UltraShort Yen ETF YCS and the ETFS Short New Zealand Dollar Long US Dollar ETC (Sterling) ETF (SNZP).