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Japanese Yen Weakens on Disappointing Retail Sales, Construction Orders

August 31, 2020 at 14:26 by Andrew Moran

1,000 and 10,000 Japanese yen notesThe Japanese yen is weakening against multiple currency rivals to start the trading week, driven primarily by disappointing macroeconomic data. Despite higher-than-normal inflows into the traditional safe-haven asset, the yen slumped on worse-than-expected retail sales, construction orders, and housing starts. But could the world’s third-largest economy get a boost from one billionaire hedge fund manager’s recent play?

Retail sales tumbled 3.3% in July, down from the 13.1% spike in the previous month. This was the first monthly decline in April, with new coronavirus infections impacting parts of the country. The largest drops were seen in apparel (-20.9%), machinery and equipment (-19.7%), general merchandise (-5.2%), and food and beverage (-2.6%). But there were increases in sales for new motor vehicles and gasoline.

Preliminary industrial production estimates suggest an 8% surge last month, up from the 1.9% jump in June. The market had penciled in a jump of 5.8%. Government analysts say that the strongest monthly rise on record was led by motor vehicles, manufacturing, and metals. Construction orders did slump at an annualized rate of 22.9% last month, down from the 13.4% contraction in June. Housing starts also fell 11.4% year-over-year, coming in slightly better than the median estimate of -12.5%.

Consumer confidence was relatively unchanged in August, with the Cabinet Office’s Consumer Confidence Index dipping from 29.5 in July to 29.3 this month. Overall livelihood, income growth, and employment prospects slipped, but buying durable goods improved.

Later this week, capital spending, purchasing managers’ index (PMI), foreign bond and stock investment, and unemployment data will be released.

Japanese financial markets were given a boost on Monday when it was reported that Warren Buffett’s Berkshire Hathaway purchased stakes in five Japanese energy and raw-materials industries for a value of more than $6 billion. These companies were Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp.

Buffett said in a statement:

I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment. I hope that in the future there may be opportunities of mutual benefit.

The Nikkei climbed as much as 6% on the news.

This comes days after Prime Minister Shinzo Abe announced he would be stepping down due to deteriorating health conditions.

The USD/JPY currency pair rose 0.56% to 105.96, from an opening of 105.37, at 14:18 GMT on Monday. The EUR/JPY advanced 0.9% to 126.57, from an opening of 125.44.

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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