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Japanese Yen Rebounds Despite Heightened Recession Fears

February 18, 2020 at 19:06 by Andrew Moran

Stacks of the Japanese yen coinsThe Japanese yen is rebounding on Tuesday after the safe-haven currency struggled to hold ground to kick off the trading week due to a disappointing gross domestic product reading. The yen’s jump, despite heightened recession fears, is being driven by decent industrial production in December. All eyes will now be on January trade data and machinery orders in December.

According to government numbers, industrial production rose 1.2% in December, up from a 1% decline in November. The market had penciled in an increase of 1.3%. The first monthly boost in industrial output was helped by production machinery, electronic parts and devices, and general-purpose machinery. There were declines in communications electronics equipment and motor vehicles.

Capacity utilization slipped for the third consecutive month to 95.1 points.

On Monday, the GDP growth rate for the fourth quarter came in at -1.6%, which was lower than the median estimate of -0.9%. The world’s third-largest economy had expanded by 0.1% in the third quarter. Q4 capital expenditure contracted 3.7%, private consumption fell 2.9%, and external demand edged up 0.5%. The preliminary reading for Q4 prices clocked in at 1.3%, up from 0.6% in the third quarter.

The final QoQ reading was the worst since 2014.

Also, the Reuters Tankan Index — a calculation of that subtracts the percentage of pessimistic respondents from optimistic ones — rose from -6 in January to -5 this month.

The consensus in global financial markets is that a recession in Japan is all but inevitable at this point. While a lot of analysts have been fearing an economic contraction for the last several months, many market observers agree that the Wuhan coronavirus exacerbated the bleak picture in Tokyo. It turned out that the economic stimulus package unleashed by Prime Minister Shinzo Abe may not be enough to avoid a recession, though it might limit the economic damage caused by the outbreak.

The global death toll from the disease is nearing 1,900 and the number of confirmed cases has topped 72,000.

The USD/JPY currency pair dipped 0.02% to 109.86, from an opening of 109.88, at 17:59 GMT on Tuesday. The EUR/JPY tumbled 0.35% to 118.64, from an opening of 119.06.

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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