The Japanese yen is strengthening against its US peer to start the trading week as the nation’s trade and industrial sectors witnessed improving numbers in February. But with a resurgence in COVID-19 cases in Japan, will the world’s third-largest economy fail to meet its economic projections?
According to the Ministry of Economy Trade & Industry (METI), industrial production fell 1.3% in February, down from the 3.1% gain in January. But the reading did beat the median estimate of -2.1%. Japanese industry reported declines in motor vehicles, electrical machinery, transportation equipment, and petroleum products.
On an annualized basis, industrial output declined 2%, up from the 5.3% drop in January.
Capacity utilization came in at 93 in February, down from 95.7 in the previous month. Still, it represented the fifth consecutive month that capacity utilization has exceeded 90 points.
On the trade front, the nation’s trade surplus widened to $61.39 billion in March, beating market forecasts. Exports surged at an annualized pace of 16.1% to a three-year high, while imports jumped 5.7% to a 14-month high. In the first quarter of 2021, Tokyo reversed its trade deficit from January.
In other news, the Bank of Japan (BoJ) weighed on the growing popularity of central bank digital currencies (CBDCs) following the rise of the digital yuan. The central bank recently announced that it had initiated a CBDC trial to learn about the technical feasibility of a digital yen. Last autumn, the BoJ had published a document outlining three stages of trials for a digital yen.
The primary concern, according to BoJ Governor Haruhiko Kuroda, would be the ability to complete cash transactions or offline payments in the event of an emergency. Should there be something like the 2011 earthquake and tsunami that devastated the power supply, how would a digital yen support the marketplace?
The COVID-19 public health crisis continues to weigh on Japan as the country reports confirmed that infections reached a four-month high. New cases and the seven-day average have topped 4,000 again, raising the nation’s total cases to 535,000. The death toll has topped 9,600.
Meanwhile, the Japanese bond market was mixed on Monday, with the benchmark 10-year yield down 0.006% to 0.085%. The three-month bill was unchanged at -0.089%, while the 30-year bond dipped 0.008% to 0.655%.
The USD/JPY currency pair fell 0.66% to 108.10, from an opening of 108.79, at 14:43 GMT on Monday. The EUR/JPY declined 0.2% to 130.10, from an opening of 130.35.