Japanese Yen Mixed As Manufacturing Weakens, BOJ Nudged to Ease

The Japanese yen is mixed midweek as new data is sending signals that the nation’s manufacturing sector is weakening. With uncertainty engulfing the global economy and Japan potentially facing a recession, the Bank of Japan (BOJ) is being pushed to be more accommodative by easing monetary policy. Prime Minister Shinzo Abe assured financial markets that Japan will not be a drag on the rest of the world, suggesting that he also wants the BOJ to ease.

According to the Japan Machine Tool Builders Association, machine tool orders plummeted 37.1% year-over-year in August, down from the previous month’s 33% plunge. This is worse than the market forecast of a 26% slide. The last time the value of machine tool orders was this low was in April 2013.
The Business Sentiment Index (BSI) Large Manufacturing Conditions Index, which measures the industry’s corporate sentiment, improved from -10.4 in the second quarter to -0.2 in the third quarter. This surprised analysts because markets had penciled in -12 in the July-to-September period.
Earlier this week, the Cabinet Office reported that gross domestic product (GDP) climbed 0.3% in Q2 from the previous three-month period, matching expectations. It also announced that Q2 GDP capital expenditures rose 0.2% and the GDP price index edged up 0.4%.
August bank lending also surged 2.1%.
Meanwhile, Reuters is reporting that BOJ policymakers are considering the possibility of expanding stimulus to limit the impact of the US-China trade dispute that is affecting international markets. Because the policy meeting is scheduled for September 18 and 19, sources told the newswire that a decision will be last minute. The European Central Bank (ECB) will announce its intentions on September 12 and the Federal Reserve’s Federal Open Market Committee (FOMC) finishes its two-day deliberations on September 18.
Sources told the news outlet:

The pickup in global growth is taking longer than expected, which could affect Japan’s output gap and hurt domestic demand. If risks to Japan’s economy are deemed too high, there’s a chance the BOJ may act.

The BOJ’s current policy framework targets interest rates, so it makes logical sense to consider moving around the targets first.

The USD/JPY currency pair advanced 0.23% to 107.79, from an opening of 107.51, at 18:27 GMT on Wednesday. The EUR/JPY slumped 0.07% to 118.70, from an opening of 118.78.

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