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The Japanese Yen: Latest Developments

13 September 2021

The Japanese Yen has seen a significant three-week decline measuring 1.80% and forming a full correction of the previous bullish movement. The price action has formed its sixth consecutive bearish daily bar after the currency was strained by fundamental influences. The price movement can be influenced by fundamental trends which are related to actual market and economic events as well as technical influences which are purely related to the price movement. Traders who wish to obtain further indications and analysis directly related to the price movement can visit our Chart Analysis tools available through the website.

Prime Minister Announces Intentions to Step Down

After barely a year in office the current Prime Minister, Yoshihide Suga, has confirmed his intention to not participate the in the next elections. The next elections are due to start November this year which again are likely to influence the price movement.

It is speculated that the Prime Minister took this decision after the Japanese leader was unable to contain the virus and even took the decision the proceed with the Olympics while the country remained under a state of emergency. The Mr Suga’s predecessor had also resigned due to a rapid drop in popularity.

The market decision on how to trade can be largely influenced by politics as many investors are more driven to regions with a stable strong political system. After the announcement, several markets reacted inversely. The stock market saw strong gains such as the TOPIX which rose by 4.97%, the highest since 1991.  In addition to the TOPIX, the NIKKEI225 also rose by 6.16% over the past 5 trading days. However, looking at both the Japanese Yen Index and the Bond market we can see strong declines. Even with strong dollar declines on Friday the currency ended lower than the market open price.

Nikkei 225

Investors are now confident that the ruling coalition will win the upcoming elections and the country will avoid possible political turmoil. Generally speaking, any sign of instability in the political system can have detrimental effects on region assets and prices.

Additional support for Nikkei 225 quotes is provided by the statement of the Ministry of Health confirming the rate of vaccination continues to increase and is likely to reach the level of the USA and European countries in the near future. Japanese investors are hoping this will result in less restrictions going forward, however, some observers stress caution. Other countries with high levels of vaccinations such as Israel have recently witnessed record high cases and a high number of unfortunate deaths. Investors and citizens remain hopeful and so far, the news have supported the price of the asset.

The data released today on the Overall Household Spending Index for July inspire some optimism among traders for the asset. The indicator in monthly terms accelerated from –3.2% to –0.9%, and in annual terms it went into the positive zone, increasing by 0.7% after declining by 5.1% a month earlier. The growth leaders in the index are: Toho Zinc Co., Ltd. (+11.35%), Softbank Group Corp. (+9.54%), Maruha Nichiro Corp. (+5.43%).

Bank of Japan

The market continues to evaluate the comments of the member of the Board of the Bank of Japan, Goushi Kataoka. He said the coronavirus pandemic could affect the country's economy for longer than originally expected and stressed the regulator's readiness to increase economic stimulus if necessary. Consequently, Japan is likely to maintain a soft monetary policy longer than other developed countries. Kataoka also said that the outlook for the Japanese economic recovery is uncertain as consumption levels remain low due to quarantine measures.

Japan and the Central Regulator is deeply struggling to stimulate the level of inflation. Currently Japan is actually seeing no inflation, but instead deflation which in the longer term can be extremely harmful to economic activity. The region has been witnessing deflation for the past 12 months but has seen a slightly improved figures of -0.3% in the latest release. Lastly, the unemployment rate in Japan remains high in comparison to previous levels. Again, the Central Bank is attempting to stimulate the employment sector to reach previous levels. Currently, the biggest risk to both inflation and employment is further social and work restrictions.

In conclusion, the Japanese Yen is witnessing healthy levels of volatility and a clear current direction in the market. However, continued analysis is necessary as the market can show signs of increased volatility and a change in trend. As mentioned above, the market will be closely evaluating the development around the Japanese elections as well as the current coronavirus related restrictions.

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