Yesterday, the euro maintained its range against the yen, even with the positive release of June’s upbeat Eurozone Sentix investor confidence index data. The economic data from Japan was not impressive. Still, the yen managed to hold ground as the market remained bearish on the euro following the ECB’s rate cut announcement last week. Overall, the EUR/JPY pair traded in a range of 168.49 to 169.21 in the past 24 hours.
According to the data published by the Bank of Japan, the country’s value of loans given by banks rose by 3% y-o-y in May after a 3.10% increase in April, missing forecasts of 3.10% growth. The reported figure reflects the second consecutive decrease in lending by banks. Furthermore, loans given by Japan’s top, domestic, and “shinkin” banks were ¥620.10 trillion. Major and domestic banks acted as major loan growth drivers, increasing by 4% and 2.90%, respectively. Also, “shinkin” banks contributed 0.30%.
Japan’s current account surplus rose to ¥2.05 trillion in April 2024 from ¥1.89 trillion in the comparable period last year, surpassing forecasts of ¥1.74 trillion.
The latest reading represents the 15th successive monthly current account surplus. The goods account recorded a deficit of ¥661.50 billion in April. Specifically, imports worth ¥9.09 trillion in April were higher than exports worth ¥8.43 trillion.
The service account deficit widened to ¥721.50 billion in April 2024 from ¥557.80 billion in April 2023. During the same period, the primary income surplus grew by 26.70% y-o-y to ¥3.83 billion in April. Secondary income reported a deficit of ¥399.30 billion.
According to a final estimate published by Japan’s Cabinet Office, the country’s economy contracted 0.50% q-o-q in the March 2024 quarter after a 0.10% GDP growth in the December 2023 quarter. The initial estimates pegged 1Q 2024 Japan’s economic contraction at 0.50%. Economists did not anticipate any change in the initial estimates.
The decline was primarily driven by private consumption, which constitutes over 50% of Japan’s economy, and experienced a 0.70% decrease for the fourth consecutive quarter. This figure aligns with initial estimates and meets market expectations. In the fourth quarter of 2023, private consumption in Japan dropped by 0.40%. The first quarter of 2024 marks the steepest decline in private consumption over the past three quarters, attributed to persistent reductions in consumer spending due to elevated living costs and stagnant wages.
Capital expenditure inched down 0.40% q-o-q in the first quarter, after a 1.90% increase in 4Q 2023. The initial estimates pegged a 0.80% drop in capital expenditure. Economists had expected a 0.70% decline in Japan’s capital expenditure for the quarter ending in March 2024.
Exports decreased 5.10% q-o-q in the March 2024 quarter, while imports fell by 3.30% in the same period. However, government spending inched up 0.20% in 1Q 2024.
Overall, on an annualized basis, Japan’s economy contracted 1.80% in the March 2024 quarter, after 0.40% GDP growth in the December 2023 quarter and slightly above forecasts of a 1.90% decline. The initial estimates pegged Japan’s GDP growth at a negative 2%.
In a separate news release, Japan’s Cabinet Office stated that the country’s economic watchers sentiment index declined to 45.70 in May, reflecting the lowest reading since November 2022, from 47.40 in the previous month, missing forecasts of 48.60. The reported reading was the third successive month of decline.
The Eurozone Sentix investor confidence index rebounded to positive territory with a reading of 0.30 in June, reflecting the highest level since February 2022, from -3.60 in May. The market had anticipated a reading of -1.50. Also, the reported reading is the eighth successive monthly increase.
The current situation index improved to -9 in June, reflecting the highest level since May 2023, from -14.30 in May. Similarly, the expectation index rose to 10, mirroring the highest level since February 2022, from 7.80.
In the US, the Sentix investor sentiment index fell to 14.90 in June from 16.30 in May. The current situation index declined to 28.30 from 30.50. Also, the expectations index decreased to 2.30 from 3.
Across Asia, excluding Japan, the Sentix investor confidence index rose to 18 in June, marking its highest level since February 2022, up from 15.90 in May. The reported figure reflects the fourth successive monthly increase.
The current situation index rose to 16.50 in June, reflecting the highest level since March 2022, from 14 in May. Also, the expectations index grew to 19.50 in June, mirroring the highest level since February 2022, from 17.80 in May.
The weak Japanese economic data is expected to turn the EUR/JPY pair slightly bullish in the near term.
The historical price chart indicates that the EUR/JPY pair is descending after breaking the support at 170.05. The next major support is anticipated to be only near 167.05. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic indicator is in the bearish zone. Therefore, we anticipate the EUR/JPY pair to remain in a downtrend for the next few trading sessions.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
