Japanese Economy Falters on Stronger Yen

April 14, 2016

A stronger Japanese yen weighed on the Japanese economy as well as the perception of the analysts that it will unlikely to stay upside as the inflation and growth remained moderately lower.

Earlier today, the yen slid against its U.S. counterpart at ¥109.39 per U.S. dollar amid the indication of a stronger yen in the market.

Atsushi Takeda of Itochu Economic Research said that in a situation where corporate sentiment has peaked out and the expected inflation rate is also on the decline, В recent progress in the yen’s appreciation will make it difficult for Japan to beat deflation.

In the recent survey, most of the В analysts agreed that the Bank of Japan failed to push deflation back and might reduce interest rate either in June or July this year.

On Wednesday, Bank of Japan Governor Haruhiko Kuroda said that the central bank is open on implementing necessary measures to address the concern regarding their economy.

Prior to this, the market was surprised with the decision of the BOJ to adopt negative rates, which pushed the yen higher by more than 10 percent against the greenback.

Upon the release of the statement of Kuroda, the shares in Japan soared, led by the Glass, Insurance and Paper & Pulp sectors. The Nikkei 225 gained 3.23 percent, while the Nikkei Volatility went up 3.41 percent to 26.11.

A chief equity strategist explained that the market sentiment became good, but it is not so strong , because the economic fundamentals have not been changed. He also pointed that the weakness of oilВ  prices and economic data of China could pull back the stock on the downside.

Meanwhile, Takashi Hiratsuka of Resona Bank’s asset management division shared that the rally may be sustainable if corporate and economic fundamentals continue to improve.

For the record, the economy of Japan narrowed by 1.1 percent in a yearly basis last year due to the dive of consumer spending and as technical recession may emerge. The GDP growth slid in the fourth quarter of 2015 as the output shrank 0.3 percent quarter over quarter. Meanwhile, it is expected to grow by 0.6 percent in 2017.

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