The Japanese yen weakened against its US counterpart to finish the trading week as economic data fell short of market forecasts. The yen, which has been trading relatively flat to start the calendar year, is driven primarily by a recovery in the world’s third-largest economy. So far, the numbers have been disappointing, something that could apply pressure on the traditional safe-haven asset.
On Friday, the Jibun Bank’s flash reading of the manufacturing purchasing managers’ index (PMI) in January came in at 49.7, down from 50 in December – anything below 50 indicates contraction. The services PMI clocked in at 45.7, down from 47.2 last month. The composite PMI fell to 46.7, down from 48.5 in December.
All three indexes reported declines in output, employment, new orders, prices, and business confidence.
Japan reported deflation for the third consecutive month as the consumer price index declined 1.2% year-over in December, down from -0.9% in November. Tokyo saw price drops in utilities, food, transportation, medical care, and culture and recreation. According to the Ministry of Internal Affairs & Communications, the core inflation rate, which strips volatile energy and food, fell at an annualized rate of 1% in December.
On the trade front, exports rose at a lower-than-expected pace of 2%, below the median estimate of 2.4%. Imports plummeted 11.6% year-over-year in December, better than the market forecast of 14%.
The Bank of Japan (BoJ) held its first monetary policy meeting of 2021 on Wednesday. The central bank left interest rates unchanged at -0.1% and maintained the benchmark 10-year government bond at 0%. Officials project that the gross domestic product will reach 3.9% growth in the next fiscal year, up from the previous forecast of 3.6%. It signaled that it would not be apprehensive about employing additional easing measures to shore up the economy.
The Japanese bond market was mixed, with the 10-year bond up 0.008% to 0.035%. The two-year note dipped 0.001% to -0.142%, while the 30-year bond jumped 0.006% to 0.65%.