Investors switch to safe-haven currencies, the Japanese Yen and US Dollar, as political jitters rise in Japan after former PM Shinzo Abe was shot dead.
The Japanese Yen rose 0.40% last week, closing at 136.08 on Friday, July 8, 2022.
The Japanese Yen against the greenback gained 1.33% last week. There was slight turbulence in the forex after the shooting of the former prime minister. But the Japanese Yen prices in the forex market recovered to close in the green last week. The Japanese Yen is considered a safe haven for investors to take shelter in when market conditions are volatile.
Japanese Yen Falters on Former Japanese Prime Minister Shinzo Abe’s Dealth
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Japan’s former Prime Minister Shinzo Abe was shot dead on Friday. The Yen rose almost 0.5% on the news of the shooting. Abe was delivering a speech in Nara when the firing took place. Abe was the longest-serving prime minister. He is best known for his “Abenomics policy”, a monetary easing policy through short-term negative interest rates. It made borrowing easier for companies and consumers. The Abenomics policy helped to stimulate the economy through regulatory reforms to pull the Japanese economy out of stagnation.
Analysts expect the Bank of Japan policies to tighten the monetary easing policy, but it is too early to speculate on the policy changes.
Investors prefer to invest in the weakening Yen as a safe asset against the prevailing global uncertainties. However, the Nikkei saw a swift fall in prices in the stock market on the news of the former prime minister’s death.
Economic Activity in Japan
The unemployment rate has climbed higher from 2.5% to 2.6%. The Tankan Manufacturing Index shows lower data at 9, than the previous figure at 14. Slowing manufacturing activity in Japan does not reflect well on the economy. Business reaction to the market conditions is the leading indicator of activities, such as spending, investment, and hiring. However, Tankan Non-Manufacturing Index shows improvement from the previous level of 9 to the present level of 13.
The monetary base in Japan came at 3.9%, less than the previous figure of 4.9%.
The Japanese economy shows improvement from the economic stimulus and very low policy rates. Vaccination levels are high in Japan, and the country showed low levels of covid infections and deaths compared to other advanced economies in 2020 and 2021.
The leading indicators in Japan are at 101.4%, lower than the 102.9% previously. Leading indicators that comprise consumer sentiment and job offers have declined in May. Covid infections are increasing again, affecting consumer sentiment. There is global uncertainty that affects economic growth in the country. The decreasing index may bring economic contraction in the business cycle.
Bank lending year-on-year has improved from 0.7% to 1.3%, indicating consumer confidence as borrowing and spending increased in the country.
Inflation is below the target at 2%. The strong fiscal policy from the Bank of Japan has kept bankruptcy levels at record lows. GDP growth is expected at 2.4% in 2022. However, the pace of domestic recovery depends on production growth and the performance of the labor sector.
Major Currency Pair News
The Euro has been sliding for quite some time. The energy crisis in Japan after the Russian invasion of Ukraine is a major issue that has hit the Eurozone. Russia is the chief supplier of energy to the Euro region. The Euro to the Japanese Yen trades at multi-year highs at levels last seen in January 2015.
The EUR/USD pair slid 3.03% last week, trading at a two-decade low. Energy crisis and high inflation are the chief concerns of the region.
The British Pound to Japanese Yen closed at 163.66 on Friday, July 8, 2022. The Sterling had to go through a week of political chaos as Prime Minister Boris Johnson quit office. It fell almost 0.2% after the resignation of the prime minister. The country faces slowing growth amid rising inflation and a hike in interest rates.
US Dollar Index
The US Dollar touched a two-decade high to become one of the best-performing currencies in the forex market. The Fed took on an aggressive tightening of monetary policy to handle high inflation in the country. The DXY extended gains and touched the peak level at 107.60 on Friday, July 8, 2022. The US Dollar index is trading above the 200 SMA at 98.45.
The Dollar Index surged 2.8% last week as investors rushed to the greenback as a safe-haven asset.
The crypto market emerged from its negative trading in July. BTC managed to trade above $22,000 and reached $22,400 on July 8. Investors expect the leading cryptocurrency to move to $40,000 levels. However, analysts warn that crypto prices move inversely with the Dollar Index. The greenback is trading at 2-decade highs. Investors must remain cautious about the rising crypto prices as they may be a false indication of the future trend in the crypto market.