In the four-weeks leading up to last Friday’s close (May 12th), the Japanese yen had been one of the world’s worst performing currencies against the US dollar, falling 4.3% within that time.
The yen’s weakness during that period marks one hell of a turnaround from the four-weeks immediately prior, in which the yen was one of the world’s strongest currencies, gaining 3.9% against the dollar.
The yen has been unloved recently in light of diverging expectations for near-term monetary policy changes in the US and Japan, and following a letup in risk aversion – a letup allowed by Emmanuel Macron’s victory in the French presidential election and by a plateau in the level of tension in the Korean peninsula.
The US dollar also benefitted in recent weeks (driving the yen down) from a strong second-quarter earnings season and April’s rebound in US jobs, inflation and retail sales data. Market expectations for US rate rises in 2017 remain unfailing and, as of writing, Fed funds futures suggest a 73.8% probability of a US rate hike next month.
Current interest rates in the US and Japan are at 1% and -0.1% respectively. Likewise, inflation is night and day between the two countries, with the most recent year-on-year figures for CPI growth standing at 2.2% in the US and only 0.2% in Japan.
As of writing at 05:00 GMT, the USD/JPY exchange rate is at 113.40, equivalent to a ¥100/USD rate of 0.882, with the yen having fallen again this morning in spite of positive PPI data (2.1% y/y vs. 1.4% prior).
The Week Ahead: Japanese GDP in the Spotlight
Analysts are expecting Japan to have gotten off to a good start to 2017. The forecast for this Thursday’s Q1 GDP is 0.4%, a number which would seal five consecutive quarters of growth in the country – the first time in eleven years that has happened.
Expected annualized GDP growth of 1.8% would also be way above trend for Japan (the last time such a number was achieved was in Q3 of 2015) and, if realized, would be a display of the significant progress made since the country’s economic slump in 2014/15, in which it experienced four consecutive quarters of falling GDP following a rise in consumption tax and general weakness in emerging market economies.
Analysts believe that 2017’s first-quarter data will have been buoyed by improved net exports, which have benefitted from yen weakness following November’s US election.
Spring Time in Japan: Time for Koreans and Taiwanese to Return the Tourism Favour
Although the yen has fallen in recent weeks against the US dollar, it still remains in the centre of its 2017 range against the US currency and, therefore, better value can be found elsewhere.
One such place is against the Korean won. On Thursday, the KRW/JPY rate closed at 0.1016 – a new 16-month high in won buying power. Although the yen recovered minimally on Friday, pushing KRW/JPY down to 0.1012, the yen still remains excellent value to holders of won.
With almost a quarter-of-a-million visits by Japanese tourists in March alone, South Korea is Japan’s most popular Asian travel destination by a clear margin. Perhaps now is the time for those in Korea to return the tourism favour and take their trips to Japan. After all, spring is one of the best times of the year to visit and with exchange rates at favourable levels there shouldn’t be much incentive to procrastinate over holiday bookings.
The same can be said for Taiwanese travellers – Taiwan being Japanese tourists’ second most popular Asian destination. Last week the Taiwan dollar reached 3.7824 against the yen – highs not seen since August 2015 – which gives those in Taiwan a wonderful opportunity to visit their Asian neighbour on the cheap.
Other currencies against which the yen currently looks great value are the euro and the British pound. Against both, the yen has fallen more than 7% in the past four-weeks, and with ¥100 now costing only £0.683 and €0.806, the yen buying power of the British and European currencies are at 5-month and 12-month highs respectively.
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