Japan Economy Slows Down Further, Yen Under Pressure

Foreign Exchange

It was another hectic day for the Japanese Yen, which traded much weaker against the greenback. A possible reason for reversal in demand for Yen was the state of economic growth in Japan, which reported a slump yet again in the fourth quarter of the year. Nonetheless, the Nikkei skyrocketed over 7% today on the hopes that bad economic news would spur more stimulus. How more stimulus is possible given already negative interest rates is an open question.

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GDP contracted

According to reports, Japan’s fourth quarter GDP fell 0.4% on a quarterly basis and 1.4% on an annualized basis. Economic growth stalled for lack of consumer spending in response to slow wage recovery and an unpredictable growth direction. Even a substantial rise in business investment failed to allay concerns related to the sluggishness in key aspects of the economy. Resultantly, investors dumped yen for the U.S. dollar as the USD/JPY pair was up by 0.54% to 113.82 during the late Asian session.

China’s trade surplus

While the U.S. and Canada remain closed on account of national holidays, developments in the other half of the world, i.e., China, were uninspiring. The region reported an 11.2% fall in exports, much higher than the 1.9% anticipated drop year-on-year. Imports also crashed 18.8% versus an expected 0.8% decline. The trade balance surplus stood at $63.03 billion, sharply higher than expected surplus of $58.85 billion.

Research firm Capital Economics commented on the data stating that trade growth has been haphazard in the first quarter, mainly on account of the timing of the Lunar New Year. For the same reason, China’s National Bureau of Statistics has postponed the release of several sets of data such as industrial output, retail sales, etc.

On the other hand, China’s central bank governor Zhou Xiaochuan said that yuan depreciation is not supported by fundamentals. During today’s trade, the U.S. dollar was down 1.19% against the yuan at 6.4959.

In other currencies, both the euro and the British pound were down against the greenback. EUR/USD traded down by 0.55% at 1.1193 while GBP/USD was weaker by 0.10% to 1.4491 respectively.

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