With the Euro’s recent rally proving short lived investors are once again turning to so called safe-haven currencies like the US Dollar and the Japanese Yen.
However, the Japanese Yen could lose some of its Eastern promise in the weeks ahead. It is expected that the Bank of Japan’s Tankan report (due for release on October 1) will show increasing pessimism amongst Japan’s main manufacturers.
According to the median estimate of economists involved in a Bloomberg News survey for the fourth consecutive quarter Japanese manufacturing confidence will wane. If this forecast proves accurate then the figure will make the present string of negative readings for the nation the longest for two years. This expected confidence dip comes at a time when export competition is being eroded by sustained strength in the Japanese Yen.
China’s economic slowdown and the European crisis have already weakened exports and piled pressure on the Japanese bank to bulk up this month’s surprise fiscal stimulus. This report could make the situation worse and increase the likelihood of the Japanese Economy sneaking into contraction in the second half of the year. Subduing the country’s deflation will prove a near impossible task for the Bank of Japan if the world’s third-largest economy should contract.
In two days time a separate data release is predicted to show a slump of 0.3 per cent in Augusts’ consumer prices.
Hiroaki Muto, a senior economist with Tokyo’s Sumitomo Mitsui Asset Management, described the situation in Japan in the following way: ‘Companies are judging it’s not the time to invest because of uncertainties over the global economy. The BOJ should expand its asset purchases this year because they are far from their inflation target and will come under increased pressure from the government to ease further.’
Similarly a chief economist with Citigroup Global Markets expressed his belief that Japan’s central bank will find it increasingly difficult to achieve its target of 1 per cent inflation by early 2015. Kiichi Murashima also commented that the BOJ will have to cut its growth target for the present fiscal year. He reiterated that ‘It makes sense for the BOJ to expand its asset-purchase program further at the Oct. 30 board meeting’.
The BOJ policy makers will gather twice in October to discuss fiscal strategies and release updated economic productions. This week Deputy Governor Hirohide Yamaguchi was quoted as saying ‘we will take flexible and bold steps if we judge our policy is insufficient to achieve our policy goal’.
The Pound to Euro exchange rate is currently trading at 1.2574
The Pound to US Dollar exchange rate is currently trading at 1.6165
The Pound to Australian Dollar exchange rate is currently trading at 1.5622
The Euro to US Dollar exchange rate is currently trading at 1.2854
The Euro to Pound exchange rate is currently trading at 0.7951
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