Japanese Yen Rises as Japan's Economic Performance Improves

The Japanese yen rose against the euro and the U.S. dollar on Wednesday. At the moment, the euro lost 0.532% of its value against the yen and is trading around ¥117.01. At the same time, the greenback lost 0.255% against the Japanese currency and is standing at ¥79.88. The Japanese currency was supported by better than expected economic data. On Wednesday, Japan's Economy Watchers Current Index rose from 28.30 in April to 36 in May. Not only that the index of perceived economic activity is increasing, it is also beating analysts' expectations, since most analysts expected the index to rise to 33 in May. The index shows that more workers are optimistic about the Japanese economy in May than they were a month ago. The index is still below 50, however, which indicates that the majority still feel pessimistic about the economy. Japan's economy is recovering not only from the financial crisis, but also from the effects of a devastating earthquake and tsunami that ravaged through northeastern parts of Japan. The yen found additional strength in the trade balance data. In April, the Japanese economy reported Japan's surplus fell 69.5% on an annual basis. Even though the Japanese surplus fell steeply in April compared to March, when the surplus was 34.3% below the value recorded in March 2010, analysts were expecting the April surplus to be 84.3% lower than a year earlier. The recent earthquake and tsunami had shaken Japan's energy distribution, which led to supply disruptions. Stronger than expected trade balance results will probably provide more comfort to investors that the Japanese economy is recovering from the earthquake/tsunami disaster more rapidly than previously though. The Japanese economy is not producing only good news, however. According to the Bank of Japan, Japanese banks' lending fell in May by 0.8% from a year earlier, which represents the 18th month in a row of declining lending. The figure is still better than an annual lending fall of 1% reported in April. Taken together, the data published on Wednesday suggest the Japanese economy is recovering from the effects of natural and financial disasters that have struck Japan. Some data came ahead of market expectations, which will probably be an encouraging sign for the investors. The Japanese economy remains weak, however, with economic activity sentiment data still pointing to widespread pessimism and the Japanese trade surplus still declining. The Japanese economy is export-oriented and falling trade surplus will not bring too much joy to investors. Traders who believe that recent data indicate that the Japanese economy is recovering at a faster pace than previously thought, which should provide some steam for the yen, will be interested in the CurrencyShares Japanese Yen Trust ETF FXY, the JPY/USD Exchange Rate ETN JYN and the ProShares Ultra Yen ETF YCL. Other traders will point to continuing weakness in the Japanese economy. With the economies of Japan's competitors looking healthier at the moment, these traders will probably be more eager to short the yen. As a result, they would like to keep an eye on the ProShares UltraShort Yen ETF YCS and the ETFS Short Japanese Yen Long US Dollar ETC ETF (SJPY).