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Japanese Yen Strengthens on Better-Than-Expected Data, BoJ Stimulus

April 1, 2020 at 16:40 by Andrew Moran

A fan of 10,000-yen billsThe Japanese yen is strengthening against different currency competitors midweek, buoyed by a plethora of economic data and outlooks that came in much better than initially anticipated. With the federal government set to unveil a comprehensive stimulus package to rescue the world’s third-largest economy from the fallout of the coronavirus pandemic, the yen’s safe-haven appeal may stay intact.

According to official state statistics, retail sales jumped 0.6% in February, down from the 1.5% gain in January. Analysts had expected a steep contraction of 0.9%. Year-over-year, retail sales are up 1.7%.

Industrial production climbed 0.4% in February, which is double the forecast by experts. Output was seen in several sectors, including electronic parts and devices (10.7%), chemicals (6%), and metals (3.2%). However, there were production declines seen in transportation equipment (-11.5%), motor vehicles (-2.4%), and machinery (-2.2%).

Construction orders unexpectedly edged up 0.7% in February, up from the 17% drop in January. Investors penciled in a reading of -12%. Housing starts fell from 10.1% in January to 12.3% in February, which beat the median estimate of -14.7%.

The Bank of Japan’s (BoJ) Tankan Index for large manufacturers’ sentiment slumped to a seven-year low of -8 in the first quarter, but it came in higher than market expectations of -10. The survey revealed that big companies anticipate boosting capital spending by 1.8%, while sentiment deteriorated among manufacturers in shipbuilding, ferrous metals, and petroleum and coal products.

Among large non-manufacturing firms, the index clocked in at 8, which is better than the consensus of 6.

Meanwhile, the Jibun Bank’s manufacturing purchasing managers’ index (PMI) declined from 47.8 in February to 44.2 in March. Observers predicted a 44.8 reading.

Prime Minister Shinzo Abe recently announced that his government would soon unveil the “boldest-ever” stimulus package to lessen the blow from the COVID-19 pandemic that has afflicted the world. While a price-tag has not been confirmed, it is projected to top the $526 billion emergency bailout from more than a decade ago. The prime minister said the rescue package would consist of cash handouts to eligible households, wage subsidies for businesses to maintain employment levels, no-interest loans to small- and mid-sized businesses, and lower tax rates.

This would be on top of the previous $93 million and $3.7 billion stimulus bills pumped into the system.

The wave of developments in Tokyo comes after the central bank purchased $1.1 billion in Japan stock exchange-traded funds (ETFs). Last month, the BoJ confirmed that it would increase its ETF acquisitions by up to $10 billion a year. The central bank is already a top-ten shareholder on the Nikkei.

The USD/JPY currency pair slid 0.42% to 107.08, from an opening of 107.54, at 16:30 GMT on Wednesday. The EUR/JPY dropped 1.37% to 117.03, from an opening of 118.66.

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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