The Japanese yen recorded a new yearly low against the major currencies as soft economic data, and ultra-loose monetary policy makes investors believe that the country’s economy may not perform well in 2019. The USD/JPY pair has rallied from a low of 109.60 to a high of 110.72 in the past 24 hours, and the uptrend may continue due to the facts presented below.
Soft manufacturing and services industry data weaken the yen
Recent reports suggest a contraction in the Japanese production and services industry. The Tertiary Industry Activity Index, a measure of the value of services purchased by enterprises, decreased by 0.3 %. The index has declined in three of the past four months.
For the fourth month in a row, Preliminary Machine Tool Orders fell in January, plummeting 18.8%. Overall, orders dropped to ¥125.4 billion ($11.34 billion), the lowest point since February 2017 which demonstrates that the worldwide downturn in the economy affects both Japan and the rest of the free world.
On Friday last week, the Japanese Ministry of Health, Labor and Welfare reported that average cash earnings had increased by 1.8% in December, while household spending increased by 0.1%. In addition, the central bank confirmed that last month, bank lending advanced 2.4%, and the current-account surplus increased to 0.56 trillion yen ($141 billion).
Meanwhile, even with record low-interest rates and monetary stimulus, the Bank of Japan (BOJ) has been heavily criticized for low levels of inflation below the 2% target range. Prime Minister Shinzo Abe backed the central bank and told legislators that he accepted the BOJ’s rational explanation for referencing low crude prices and the country’s deflationary views on low levels of inflation.
And the BOJ is not secretive about rates of growth, warning against trade protectionism and soft global growth that could undermine the national economy.
In the US, President Donald Trump said Tuesday he would undoubtedly look at the option of extending the deadline for the current trade negotiation with China beyond March 1st.
While speaking to the reporters at the White House, Trump said “If we’re close to a deal, where we think we can make a real deal … I could see myself letting that slide for a little while.”
Trump has made these comments at a time when the third round of trade-related discussions was set to begin in Beijing to avoid more than doubling of tariffs on Chinese goods worth US$200 billion. Notably, the import tariffs are set to rise to 25% on a majority of Chinese products, if no agreement is reached by March 1st.
Regarding China’s interest in finding a solution to the issue, Trump said: “China wants to make a deal very badly,” and “things are going well” in the negotiations. While no date has been fixed for a face-to-face meeting with Chinese President Xi Jinping, Trump said he anticipates that to occur “at some point.”
The comments boosted the market sentiment and risk appetite of investors. US stocks closed broadly higher as the prospects of a resolution to the trade dispute increased. The S&P 500 gained 34.93 points, or 1.3%, to 2,744.73. Likewise, the Dow rose 372.65 points, or 1.5%, to 25,425.76. While the soft economic data weakened the yen, overall optimism about the US-China trade talks strengthened the greenback.
Technically, the USD/JPY pair has found strong support at 109.60. The next major resistance is only at 112.60. The stochastic oscillator is also in the bullish zone. As a result, we can anticipate the uptrend to continue in the short-term.
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