Japanese Yen Rises on Rebounding Industrial Production

The Japanese yen rose slightly against the U.S. dollar on Wednesday, following a strong rebound in Japan's industrial production. At around 6 am GMT, the greenback lost 0.07% of its value to trade around ¥81.065. The Japanese currency found support in better than expected rebound in the country's industrial production. In May, Japan's industrial production grew by 5.7%, compared to a month earlier, significantly higher than 1.6% recorded in April. Analysts had predicted a bit weaker rebound of 5.5%. At the moment, Japan's industrial output is recovering at the strongest pace in more than 50 years. The news will be welcomed by analysts as another sign that Japan is recovering from the effects of the natural disasters, which have caused power shortages and supply disruptions. If these disruptions continued for a while, an increasing number of Japanese companies might be inclined to shift production away from Japan. The rebound was especially strong in car manufacturing, which grew by 36%. Japan's automotive industry was especially hard hit by recent shortages of parts and power, with Toyota and Nissan being forced to halt production in their factories. The news will be welcomed especially by Toyota, which had its rating downgraded by Moody's from Aa2 to Aa3. Japan's recovery has provided a tailwind for other Asian currencies. The biggest winners against the greenback in today's trading so far are the Thai baht (up 0.48% to 30.8250), the South Korean won (up 0.47% to 1076.62) and the Taiwanese dollar (up 0.19% to 28.8980). The East Asian currencies even managed to shake off rising commodity prices. The East Asian countries rely heavily on importing raw materials. As a result, rising commodity prices will put pressure on their trade balance. In today's trading, natural gas is the only major commodity whose price declined. At the moment, natural gas trades around $4.344, or 0.44% below yesterday's close. Gold is still above the $1,500 line, after rising 0.3% to $1,506.05. Silver is up 0.66% to $34.15, while crude oil added 0.15% to its value to trade around $92.92. Finally, the price of copper rose 0.24% to $4.121. Traders who believe the industrial production data in Japan is a definite proof that Japan's economy has turned the corner will be highly optimistic about the yen's prospects, especially in light of debt problems in the Eurozone and the United States. As a result, these traders 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 might be skeptical about Japan's long term outlook. Even if the worst effects of the tsunami/earthquake disaster are behind us, the Japanese economy is still marred by political instability, with new elections looming. Furthermore, deflationary pressures, which have been hurting the performance of Japan's economy for two decades, are not resolved. As a result, some traders will be more interested in shorting the yen, e.g. in the ProShares UltraShort Yen ETF YCS.