Mixed Economic Data Keeps the Yen Range Bound

Mixed Economic Data Keeps the Yen Range Bound
April 5, 2019

 

The Japanese yen is trading in a mixed manner against some of the G10 currencies as a flurry of recent economic data do not signal concretely whether the domestic economy is on an expanding or contracting mode. Policymakers also dug deep into the most recent Modern Monetary Theory (MMT) that is gaining traction in the US.

According to the Bank of Japan (BOJ), for the first time in 30 years, economic output surpassed its peak capacity most in the fourth quarter of 2018. The central bank forecasts an output gap of 2.2% in the quarter ending December. Notably, it would mark the ninth successive quarter of a positive output gap.

A positive output gap occurs when real output surpasses the potential of the economy. This happens when plants and employees work beyond their most competent level to match demand.

However, in March, business activity plunged, with growth recording its lowest rate since September 2016. The Nikkei Composite Purchasing Managers Index (PMI) fell to 50.4 in March from 50.7 in the earlier month. Based on these PMI figures, analysts anticipate Japan’s economy to struggle in 2019.

A separate poll found a dull tone among the entrepreneurs of the nation. The BoJ published the outcomes of its closely monitored Tankan survey, which Indicated that business confidence fell to a two year low in 1Q19, with the rate of decline being the fastest since December 2012. The BOJ expressed concern about the trade war between the United States and China and slowing global demand.

In the meantime, Tokyo discusses Modern Monetary Theory (MMT), which is gaining popularity in the United States. According to advocates of MMT, the government should take up the responsibility of increasing the money supply and not the central bank.

The freshly printed currency should then be sent directly to the treasury, instead of transferring it to the credit markets. MMT is designed to boost job opportunities and inflation.

Regarding the MMT theory, Japanese Finance Minister Taro Aso cautioned that using state expenditure as a key policy instrument for stimulating growth would boomerang on the world’s third-largest economy, owing to its huge level of debt.

Taro Aso issued the following statement regarding MMT: “It’s an extreme idea and very dangerous because it would weaken fiscal discipline. I have no intention of making Japan a platform for experimenting with such ideas. BOJ governor Haruhiko Kuroda echoed Aso’s sentiment in the Japanese parliament.”

Haruhiko Kuroda, BOJ’s governor also reverberated Aso’s opinion in the Japanese parliament. The mixed data is expected to keep the yen range bound in the short-term.

Technically, the USD/JPY pair remains range bound between 109.50 and 111.90. The MACD indicator is making new lows in the negative region. As a result, having touched the resistance level today, we can expect the currency pair to begin a downtrend in the days to come.

JPY - technical analysis - 5th April 2019

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.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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