China’s less-than-spectacular manufacturing PMI, coupled with falling commodity prices, fears of a global slowdown and mixed economic reports for the US, have seen the US Dollar to Japanese Yen exchange rate decline this week. The USD/JPY exchange rate fell to a four-week low on Tuesday as oil prices extended losses and the Russian Ruble went into free-fall. According to strategist Eric Viloria; ‘The Japanese Yen and Swiss Franc tend to be haven currencies so they’re getting some support. [...] the steps taken by the [Russian] central bank haven’t helped the currency.’
The Yen rallied by over 1.2% against the US Dollar and climbed against both the Euro and Pound. The Japanese currency also derived support from the JMMA Manufacturing PMI for December. The index edged up slightly from 52.0 to 52.1. Markit economist Amy Brownbill said of the result; ‘Operating conditions in the Japanese manufacturing sector continued to improve in December, with new orders and output remaining in solid growth territory. Furthermore, the pace of job creation accelerated to the fastest since April. Meanwhile, with the falling Yen/Dollar rate, input prices continued to rise at a sharp pace. The short-term outlook appears broadly positive, although there is some uncertainty.’
The downturn in the USD/JPY exchange rate was exacerbated as US reports failed to reach forecast levels. However, the Yen could drop back as many economists envisage the Bank of Japan increasing stimulus even further next year. With Japan slipping unexpectedly into recession, the central bank has already had to extend unprecedented levels of easing to defend the nation’s economic outlook. In the view of economics expert Akio Makabe; ‘The BOJ boosted expectations for additional stimulus by October’s easing. It will have no choice but to expand easing further if risks to the economy arise.’
With the Federal Open Market Committee interest rate decision looming, and the US set to publish its Consumer Price Index tomorrow, further US Dollar to Japanese Yen exchange rate movement can be expected. Investors will also be focusing on the Japanese merchandise trade and machine tool orders figures, as well as the US Markit Services/Composite PMI for December.