Yen Strengthens On Longest Stretch Of Economic Expansion

Yen Strengthens On Longest Stretch Of Economic Expansion
January 10, 2019


Safe haven currency, the Japanese yen, is strengthening against the US dollar as the world’s third-largest economy is on its way to record the longest stretch of economic expansion since the Second World War. The recent economic data also encourages investors to bid the yen higher. With trade negotiations between the US and Japan on the horizon, markets may continue to push the yen higher.


Robust economy aids the yen’s rally

Japan’s economy outperformed 57 months of growth in September 2017 (November 1965 to July 1970), referred to as the Izanagi boom. The Cabinet Office affirmed earlier last month that the economy is on track to match its record post-war growth rate with a 73rd successive month of growth. The prior 73 month Izanami expansion lasted from February 2002 to February 2008.

Yesterday, the federal government unveiled that its Business Conditions Indexes reported its highest economic rating: “Improving.” That has been the case for 23 months in a row, but due to natural catastrophes that have affected Japan, it is anticipated to drop to “weakening.” However, most studies suggest that Tokyo will manage to avoid a recession in the near future.

Only a few months back, Japanese central bankers pondered how they could begin to curb a huge monetary stimulus due to concerns about furthering the damage inflicted by years of near-zero interest rates on the earnings of banks and financial institutions.

However, the flash crash of the dollar against the yen last week quickly reminded Japanese lawmakers how their mechanisms are largely influenced by external circumstances beyond their control, particularly by what the US Federal Reserve does.

If the Federal Reserve hits the stop button on rate tightening, the Bank of Japan (BOJ) could launch further stimulus programs in 2019. Central bank officials want to stop the yen from soaring too much as it could harm the economy. The yen rally in the last few weeks has raised fears for BOJ leaders, especially when trade disputes are slowing down global economic growth.

Increasing fears of a global economic slowdown have also changed the focus of the BoJ to the possible risks to Japan’s recovery and whether it would probably be sufficient to maintain the current monetary stimulus.

While the world economy is slowly recovering, the outlook is not entirely greener. The economic fundamentals of Japan are strong, but lawmakers would like to keep a watchful eye on the different risks involved. The Japanese administration is also likely to increase sales taxes unless there is an unexpected economic disaster.

The World Bank recently published a report entitled’ Darkening Skies,’ which predicts global economic growth to reach 2.9% in 2019, down from its prior forecast of 3%.  However, the organization upwardly revised Japan’s growth from 0.8% to 0.9% but voiced concerns at its debt level. The debt-to-GDP ratio of Japan is 236%, which remains a matter of concern to economists. Still, the unprecedented economic expansion is expected to keep the yen bullish against the US dollar in the short-term.

Technically, the USD/JPY has broken the support at 112.20 as shown in the image below. The currency pair is also trading below its 50-day moving average. The RSI indicator is also in the bearish territory. As a result, we can expect the US dollar to remain weak against the yen in the days ahead.

jpy - technical analysis - 10th January 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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