The Japanese yen extended its losing streak against its US counterpart midweek amid disappointing economic data. The yen has been one of the worst-performing major currencies in foreign exchange markets, sliding more than 7% against the greenback. With officials conceding that the impact of the COVID-19 pandemic on the world’s third-largest economy will persist longer than expected, investors might turn bearish on Japan.

According to the Ministry of Economy Trade & Industry (METI), industrial production fell 2.1% in February, worse than the median estimate of -1.2%. This is down from the 4.3% increase in January. On an annualized basis, industrial output slumped 2.6%, led by declines in production for motor vehicles, electrical machinery, chemicals, and medicine.

Construction orders rose 2.5% year-over-year in February, lower than the 14.1% surge in January. The market had forecast a 3.2% expansion.

Housing starts declined at an annualized rate of 3.7% last month, down from the 3.1% year-over-year drop in January. The market had penciled in a slide of 4.8%.

Earlier this week, it was reported that annualized retail sales fell by a better-than-expected rate of -1.5%.

With the first quarter of 2021 in the books, market analysts are beginning to comb through the gross domestic product (GDP). The consensus is that the January-to-March period will record a contraction in GDP, and experts believe that additional coronavirus waves and new variants could weigh on the Japanese economy for many years to come.

Does this mean that the Bank of Japan (BoJ) will curtail its aggressive monetary policy stimulus and relief actions? The BoJ has signaled that it will start to tighten policy to enable price stability, with Governor Haruhiko Kuroda optimistic on the country’s economic recovery in the new fiscal year that begins in April.

The global economy is rebounding, a move that is also seen in Japan’s economy. The recovery in the US economy is positive both for Japan and global growth.

We will closely monitor markets as well as overseas and domestic economic developments, as various uncertainties remain on the impact of the COVID-19 pandemic.

But if the economy struggles to grow, it is unlikely that the central bank will have the temerity to raise interest rates and wind down its form of quantitative easing. The April 26-27 meeting should provide more official insight into the institution’s position.

The USD/JPY currency pair rose 0.33% to 110.71, from an opening of 110.36, at 14:08 GMT on Wednesday. The EUR/JPY climbed 0.48% to 129.93, from an opening of 129.31.