The Japanese yen is holding steady against some of its major currency rivals, including the US dollar, on Tuesday, despite double-dip recession fears in the world’s third-largest economy. The yen has been struggling this year as investors’ appetites for safe-haven currencies have diminished amid the global economic recovery and strengthening financial markets. Could the yen add to its 5% decline heading into the second half of 2021?

According to the Cabinet Office, Japan’s gross domestic product (GDP) contracted at an annualized rate of 5.1% in the first quarter of the year, worse than the median estimate of -4.6%. This is down from the revised 11.6% boost Tokyo reported in the fourth quarter of 2020.

The culprit for the disappointing numbers? Private consumption plunged 5.4%, while government consumption decreased 6.9%. Moreover, quarter-over-quarter capital expenditures slipped 1.4% in the January-to-March period, and external demand dipped 0.2%. The GDP price index slid 0.2% year-over-year.

This comes one day after the government confirmed that producer prices advanced 3.6% year-over-year in April, higher than the market forecast of 3.1%. This is triple the figure reported in March.

On a monthly basis, the producer price index (PPI) rose 0.7%.

In other data, Japan Machine Tool Builders’ Association (JMTBA) found that machine tool orders surged 120.8% in April, while the Tertiary Industry Index jumped 1.1%.

Overall, the disappointing economic figures have market observers warning that this could turn into a double-dip recession, stemming from Prime Minister Yoshihide Suga’s administration applying new COVID-19 restrictions on half of the economy. This, according to financial analysts, might prompt the prime minister to pull the trigger on additional stimulus.

Economist Yoshiki Shinke at Dai-Ichi Life Research Institute told Bloomberg:

“If the state of emergency is extended, that will certainly raise the odds of a contraction. Consumer spending is the biggest missing piece for the economy and it’s hard to predict because it’s very much dependent on the virus situation.”

The Japanese bond market was mixed, with the ten-year bond down 0.001% to 0.077%. The three-month bill edged up 0.01% to -0.089%, while the 30-year bond rose 0.01% to 0.658%.

The USD/JPY currency pair tumbled 0.32% to 108.88, from an opening of 109.23, at 14:35 GMT on Tuesday. The EUR/JPY climbed 0.17% to 132.97.