Japan enters recession but Yen remains stable
18 May

Japan enters recession but Yen remains stable


The pound dipped in early trading after a Bank of England official confirmed it was examining a range of unconventional policy tools, including negative interest rates. The Bank of England’s chief economist Andy Haldane did not rule such a move out in an interview on Saturday. Sterling was about 0.3% lower against the greenback, with moves muted elsewhere across currency markets. The pound sank to a seven-week low of 89.58 pence per euro and was under pressure at $1.208 after a week-long deadlock over a post-Brexit trade deal with the European Union and increasing focus on the possibility of negative rates. Nevertheless, the British currency bounced back to $1.212 and 89.2 pence against the dollar and euro respectively, as the European markets opened.


Japan’s economy slipped into recession with first-quarter GDP data underlining the impact of the outbreak.  Exports plunged the most since the devastating March 2011 earthquake as global lockdowns and supply chain disruptions hit shipments of Japanese goods. Still, Tokyo's Nikkei rose 0.6% as signs of a slowdown in coronavirus infections raised optimism that Japan would soon ease restrictions in more prefectures. The yen was also little affected. The recession is nevertheless expected to deepen further this quarter as consumption crumbled after the government requested citizens to stay home and businesses to close in April. The emergency was lifted for most regions on Thursday but remained in effect for some big cities including Tokyo. The world’s third-largest economy contracted an annualised 3.4% in the first quarter, preliminary GDP data showed. The slump came on top of an even steeper 7.3% fall in the October-December period. The government has already announced a record $1.1 trillion stimulus package, and the Bank of Japan expanded stimulus for the second straight month in April.


Asian shares stepped ahead and oil prices hit a five-week peak as countries’ efforts to re-open their economies stirred hopes the world was nearer to emerging from recession. Warm weather is enticing much of the world to exit the coronavirus lockdowns as centres of the outbreak from New York to Italy and Spain gradually lift restrictions that have kept millions cooped up for months. The positive sentiment overcame escalating U.S.-China tensions, sending E-Mini futures for the S&P 500 up 1.1%, even though results from a raft of U.S. retailers are mixed. Eurostoxx 50 gained 1.8% and FTSE was 1.5% higher. Indices edged down in Hong Kong but rose in Australia following a rise in iron futures.


The dollar wavered as investor optimism about the re-opening of economies around the world lifted commodity prices and exporters’ currencies. Talk of negative interest rates held the pound near an almost two-month low but it quickly recovered as European markets opened. A rise in commodities helped as oil pushed the Canadian dollar 3% higher and iron lifted the Australian dollar from a one-week low but still remained under 65 cents. The New Zealand dollar rose 0.4% as the island continues to cash in for virtually eradicating the virus. Against the yen, the U.S. currency sat more or less in the middle of a range it has kept since April, at 107.2 per dollar despite Japan entering recession. Yen has remained stable despite the figures, as it continues to trade at under 116 yen against the euro.


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