This week, the biggest lesson in
the market is that the global economy is weakening. This is after all the major
central banks issued warnings about the growth, which justified their lack of
action when making interest rates decision in the past two weeks. The Bank of
Japan (BOJ) is particularly having a challenge because of the weakening global
demand and weakening inflation. On Monday, the country released the trade data,
which showed that exports and imports had declined in the past month. Exports
declined by minus 1.6% while imports decreased by 6.7%. Exports are important
for Japan, because the country depends mostly on selling to the rest of the
world.
The situation for Japan got worse
today because of the inflation numbers, which were released by the country.
Again, these numbers showed that the inflation rate is way below the two
percentage points set up by the BOJ. The data showed that the national consumer
prices rose by an annualized rate of 0.2%, which was lower than the expected
0.3%. the core CPI, which excludes the volatile food and energy prices rose by
0.7%, which was lower than the expected 0.8%. Worse, the manufacturing PMI remained
at 48.9. A PMI number below 50 is often viewed as a contraction in the sector.
Regardless of all these, the
Japanese economy is doing well. The unemployment rate is still low while the
economy is expanding at an average pace. However, with the rate of inflation so
low, there is a possibility that the bank may continue to leave rates in the
negative zone for longer. The problem with this is that it makes the financial
sector less competitive. It also makes it difficult for the bank to react in a meaningful
way in case of a recession or bear market.
This week, the USDJPY pair
declined sharply after the BOJ decision. The pair declined, to a low of
110.322. This was the lowest level in months. The pair has consolidated along
the three Bollinger Bands lines, which is an indication that the pair is likely
to remain along these levels. In case of a major movement, it may be upwards
because the US is at a better place than Japan.
The post Japanese Yen Declines After Weak Inflation Numbers appeared first on Forex.Info.