Yen Strengthens On Rise In Domestic Capital Expenditures

Yen Strengthens On Rise In Domestic Capital Expenditures
June 5, 2019


The Japanese yen is strengthening against most of the G10 rivals on upbeat business spending data and overall optimistic initiatives taken to further strengthen the domestic economy. So far in 2019, the yen has made substantial inroads against a basket of G10 rivals, mainly the greenback, luring investors who are running for cover due to the ongoing geopolitical uncertainty and trade war. The USD/JPY pair, however, remains bound in a narrow range of 107.80 to 108.20.

The most recent Ministry of Finance (MOF) data indicates that domestic business spending jumped in 1Q19. As per the Japanese government, in the quarter ended March, capital expenditure increased 6.1% on a y-o-y basis. In the earlier quarter, capital expenditure rose 5.7%. The increase in capital expenditure was led by growth in chemicals, leasing of items, and production machinery. The jump in capital expenditure took place despite an increase in external pressure on trade.

Economists are now widely expected to update Q1 gross national product (GDP) numbers to be released on June 10th. GDP information initially indicated that the country with the third largest GDP grew at an annualized 2.1% in the first quarter, after a 1.6% growth in the December quarter.

On the economic data front, however, it wasn’t all great news. The Nikkei Manufacturing Purchasing Managers (PMI) Index was 49.8 in May, a decline from 50.2 in April. Economists had predicted 49.6. Anything under 50 signals an economic contraction.

A draft of the annual economic policy of Japan indicates that Tokyo will use monetary stimulus “without hesitation” in 2020 if the country’s economy is threatened by dismal global economic growth and protectionist measures in trade. Over the next few weeks, the government is anticipated to complete its 2020 plan and use it to create its budget.

While the development plan is yet to be made official, the industry already sees the kind of stimulus that will be provided by the Prime Minister Shinzo Abe before the end of 2020, including tax cuts, projects related to public works, and vouchers for shoppers. The stimulus will be offered in parallel with the hike in national sales tax. In the meantime, on June 10th and 11th, the United States and Japan will conduct working-level trade talks. The sessions will concentrate on trade in manufacturing and agricultural products, the Japanese Minister of Economy Toshimitsu Motegi claims.

The robust rise in domestic capital expenditures and monetary stimulus expectations are anticipated to keep the yen strong in the near-term.

Technically, the USD/JPY pair is moving within a descending channel as shown in the image below. The oscillator of moving average has a negative reading. As a result, we can expect the currency pair to remain bearish in the short-term.

JPY - technical analysis - 5th June 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.



Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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