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Japanese Yen Weakens as Economic Outlook Worsens

The greenback to the Japanese yen weakens as private consumption, business conditions, and corona impact affect the Japanese economy negatively.

USD to the Japanese Yen at Resistance Level at 109.50

The USD to the Japanese yen closed at 109.65 for the week ended June 11.

The USD/JPY touched a low of 107.90 levels in the last week of April 2021. In May, it moved bounced back from 108.50. In June, the greenback to the Japanese yen reached a low level of 109.25, but the USD/JPY currency pair closed at 109.65 on June 11, 2021.

On the upside, the USD/JPY currency pair rose to 110.00 levels in the first week of June. However, it reversed lower, as the currency pair was unable to continue its positive trend. It framed a bearish reversal pattern formation last week, which has brought the currency pair lower.

Japanese Yen Weakens with a Bearish Reversal Pattern
Japanese Yen Weakens with a Bearish Reversal Pattern

Private Consumption and Business Condition Weaken Japanese Yen

According to the Economic Impact Report of World Travel and Tourism, the Travel and Tourism sector has been affected. The Japanese economy lost almost $138 billion, as the pandemic has hit the tourism sector badly.

The nation’s GDP has fallen from $373 billion in 2019 to $234.9 billion in 2020.

Japan’s GDP growth rate has come down 1.0% for the first quarter of 2021. It is lower than the initial estate of a 1.3% decline. It is the first contraction since Q2 2020. Slow vaccine rollout and a resurgence of the Covid-19 cases have been the cause of the lower GDP figures. Private consumption has dropped along with a decline in government spending.

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Leading Economic Indicators, which gauge the economy of Japan, have gone up to 103.0 in April. The March figure is at 102.4. It is the best reading since 2014, showing a recovery in the economy in consumer sentiment and job offers. The economy has been growing after the chaos caused by the pandemic.

Japan is the third-largest country in terms of global GDP ranking after the US and China. The GDP price index indicates the ratio of fluctuation in prices showing the national economic power.

The Corporate Goods Price Index (CGPI) measures the changing inflation rate in Japan. It has a high correlation with consumer price inflation. The higher than expected reading at 4.9% from the previous figure at 3.8% is bullish for the Japanese yen.

Bank of Japan to Keep Monetary Policy Unchanged

Boj has not made any change to its monetary policy. Board member of BoJ Hitoshi Suzuki says that the bond yields are a bit disappointing, but there is no intention to make the bond market volatile.

The two-day policy meeting in mid-June will reveal more about vital decisions taken, say experts. The negative interest rates will continue, say analysts. Asset purchase settings may continue as the pandemic continues to hit the economy.

Bank of Japan brought in negative interest rates as a fiscal stimulus in the economy. The economy shows improvement with better business sentiments and investment growth.

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The central bank has plans to extend aid for small businesses as the pandemic has hit economic activities. The corona pandemic has affected households and business people. The policy board decides on appropriate guidelines for the country after discussing the financial and economic situation in the country. Adequate guidelines will be provided on money market operations.

Private consumption has not picked up in Japan as people are still cautious about going out. The export of automobiles in May and June is not up to expectations. There is a shortage of semiconductors, which has brought down production, say BoJ authorities.

Commodity prices are increasing in Japan, which shows a global economic recovery.

Mass Vaccination Program in Japan

Japan offers thousands of shots every day through its massive vaccination drive in Japan. The vaccination program started late due to supply shortages and hurdles in getting vaccines. Only 1.9% of the population is fully vaccinated. The healthcare system faced huge hurdles with the latest surge in coronavirus cases. A state of emergency has been announced. Measures to control the pandemic have increased.

Tokyo Olympics

The Olympics Games in Tokyo are scheduled for July 2021. There is increasing pressure to cancel the Olympic Games. But major stakeholders are willing to stage the games for political reputations.  The economy will suffer almost 1.8 trillion yen if Japan does not host the Olympic Games. However, it may also become a super spreader event that would hurt the health and economic recovery of the country. It will attract more visitors and bring in more business activity in the country. The much-awaited Games were postponed earlier in 2020.

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USD/JPY Currency Pair

The US dollar has climbed back to the psychological level above 90.00. The US Treasury yield has moved lower with weakness while the greenback has strengthened from the lows of 89.50 levels.

There is weakness in the US Treasury yields, which has brought down the USD/JPY pair lower to 109.50. The 10-year Treasury yields are at 1.45%, though they fell to 1.42% earlier. The poor performance in the US bond yields affects the USD/JPY currency pair.

 

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