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Japanese Yen Strengthens Despite Businesses Bearish on Economy

August 12, 2019 at 18:55 by Andrew Moran

1,000 and 10,000 Japanese yen notesThe Japanese yen is posting modest gains against most-traded currency rivals to start the trading week, despite various negative reports regarding the world’s third-largest economy. The latest research shows that the private sector is anticipating the economy to be flat or slip into a recession. With the US-China trade war lingering in the background and Tokyo set to be engaged in trade talks with Washington, economic growth is being threatened, and the central bank may not be able to resuscitate growth.

According to a Kyodo News survey, more than two-thirds of major Japanese companies do not expect the economy to accelerate anytime soon. Citing the prolonged trade dispute between the world’s two largest economies, many of the nation’s largest businesses are cautious about the economic outlook for the next 12 to 18 months.

As the federal government is still expected to pull the trigger on a sale taxes hike in October, businesses fear that consumption will drop. Since a large part of the Japanese economy is consumer-driven, this could exacerbate weakness.

The study, which included Sony and Toyota, found that 66% think the economy is flat, 23% say it is gradually expanding, and 10% are forecasting a recession. This is in stark contrast to the same poll last year, which found that 77% of companies said the economy was growing.

Last week, a preliminary second-quarter gross domestic product (GDP) report found that the Japanese economy advanced 0.4%, down from 0.7% in the January-to-March period. But it is better than the median estimate of 0.1%.

News that President Donald Trump would “reciprocate” against countries that issued travel warnings in the aftermath of the mass shootings that occurred in El Paso, Texas and Dayton, Ohio did not help matters. Japan was one of the states to issue a travel warning. He told the press:

But if they did that, we’d just reciprocate. We are a very reciprocal nation, with me as the head. When somebody does something negative to us in terms of a country, we do it to them. Look, our country has been taken advantage of by foreign countries, even allies — including allies, and in many cases, more than anybody else. We’ve been taken advantage of for many, many years, and it stops. It stopped.

Should the economy officially slip into a recession, the Bank of Japan (BOJ) would intervene, correct? Many on Wall Street, including Goldman Sachs, say that the BOJ has “pretty limited” options to combat a steep downturn because it has already fired too many unconventional bullets. This might be true because the central bank has already brought interest rates to historic lows and officials have intervened immensely in the stock market, acquiring a huge number of shares in stock indexes.

On the data front, investors will look to price inflation, machinery orders, industrial production, and trade numbers this week.

The USD/JPY currency pair tumbled 0.43% to 105.22, from an opening of 105.68, at 18:48 GMT on Monday. The GBP/JPY was flat at 127.13.

If you have any questions, comments, or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

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