Japanese Yen Surpasses 100 Against the USD As Abenomics Facing Tough Times

By FX Empire Analyst - Barry Norman
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Japanese Yen Surpasses 100 Against the USD As Abenomics Facing Tough Times

Japanese Yen Surpasses 100 Against the USD As Abenomics Facing Tough Times

Janet Yellen is the talk of the market place and news headlines this morning. The US dollar climbed to 81.10 as the euro declined to 1.3254. Tasmania currencies are trading in the green with the Aussie at 0.9344 and the kiwi touching 0.8288. While markets focus on her comments and are rather pleased by her stance and her pledge to push not just jobs but also growth. She also assured markets that the Fed would continue its current policy of easy money until the economy was showing strong signs of recovery. Her comments were positive for almost all currencies which climbed this morning, except for the Japanese yen which has tumbled now trading at 100.21 after comments from Finance Minister Aso and also members of the Bank of Japan promising intervention to help the economy continue to turn from deflation to inflation. After its massive stimulus injecting in April, things started to improve for the Japanese economy, but recent data is showing a slowdown in the effects. Prime Minister Abe’s Three Arrow plan may not be enough to turn the economy. Japan’s current account balance plummeted by nearly two-thirds in August from a year ago, surprising forecasters that had assumed it would grow nearly a fifth. The current account is a broad measure of trade. A fall indicates Japan is receiving less income from overseas investments, despite help from the falling yen.

The current account surplus fell nearly 64 per cent in August, versus forecasts expecting an 18 per cent gain. The unadjusted balance in the month was ¥161.5 billion, against forecasts at ¥520 billion and down from ¥577.3 billion in July. Within the data, trade of goods and services was in deficit of more than ¥1 trillion for a second consecutive month, while income fell to ¥1.253 trillion from ¥1.794 trillion a month before. The share of Japanese households with no financial assets rose to a record as falling incomes forced people to dig into their savings, highlighting the potential for widening disparities under Abenomics.

The proportion reached 31 percent, according to a Bank of Japan survey released in Tokyo yesterday; up from 26 percent a year earlier and the highest since the poll began in 1963. The BOJ surveyed 8,000 households of two or more people aged 20 years or older from June 14 through July 23. Prime Minister Shinzo Abe needs to convince companies to drive up workers’ pay, so that he can sustain an economic recovery jump-started by fiscal and monetary stimulus and maintain public support. Already facing declines in wages, households will be hit in April by a consumption-tax increase intended to shore up Japan’s finances. The most worrisome data came in the form of the GDP release which showed that Gross domestic product rose at an annualized 1.9 percent, down from 3.8 percent the previous quarter, with the gain relying on government spending and an accumulation of inventories, the Cabinet Office reported in Tokyo. A widening trade gap lopped off 1.8 percentage point from growth. Corporate investment increased 0.7 percent, down from 4.4 percent.

Prime Minister Abe had instructed the finance ministry and the Bank of Japan to prepare a stimulus program to offset the increase in sales tax due shortly. To succeed Japan needs to see businesses invest more money and increase workers’ wages. It is a difficult scenario balancing a sharp sword without cutting yourself.

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