Yen Gains on Commodity Currencies, Reverses Losses vs. Others

Commodity currencies were generally weak today, allowing the Japanese yen to gain on them. The yen also rose versus the Great Britain pound. Initially, the Japanese currency was flat against the US dollar and fell versus the euro and the Swiss franc but currently the yen rebounded, rising against the dollar and the euro while being about flat against the franc. Japan released a bunch of macroeconomic indicators today, and unsurprisingly, they were rather bad.
The Jibun Bank Japan Manufacturing PMI plunged from 44.8 in March to 41.9 in April according to the final estimate, reaching the lowest level in 11 years. Market participants were counting on the same 43.7 reading as in the preliminary estimate. As one could expect, the report explained the drop by the negative impact from the COVID-19 pandemic:

Japan’s manufacturing downturn intensified during April, according to the latest PMI data, as production volumes fell at an even faster pace than seen in March as the coronavirus disease 2019 (COVID-19) pandemic caused a further severe drop in domestic and overseas demand. Supply chain dislocations were once again apparent as vendors shut down their operations, causing shortages of inputs.

The report commented further:

Latest survey data pointed to a severe reduction in Japanese manufacturing production that was the strongest since March 2009. According to panel members, output cuts were a consequence of the global COVID-19 pandemic, which had led to a collapse in demand and factory shutdowns.

In the Monetary Policy Minutes of the March meeting the Bank of Japan policymakers voiced concerns about the ability of the nation’s economy to recover fast after the pandemic subsides:

A few members said that it was uncertain whether the economy would recover strongly after COVID-19 receded, considering that economic activity had shown some weakness since before COVID-19 had exerted an impact, that is, due to the effects of the consumption tax hike and natural disasters.

The Statistics Bureau of Japan reported that the core Tokyo Consumer Price Index fell by 0.1% in April, year-on-year, whereas analysts were expecting an increase at the same rate. Month-on-month, the index fell 0.3%.
The falling consumer prices fueled worries about deflation. In response to such concerns, Japanese Economy Minister Yasutoshi Nishimura said on Friday that the government and the BoJ will work together to avoid such a scenario:

The government will work with the central bank to ensure Japan absolutely does not slip back into deflation.

USD/JPY fell from 107.12 to 106.97 as of 7:49 GMT today, retreating from the day’s high of 107.40. EUR/JPY was up from 117.29 to 117.51 intraday but backed off to 117.22 now. CAD/JPY sank from 76.91 to 76.19.

If you have any questions, comments, or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

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