Today, financial markets saw a significant decline in the value of the Japanese yen after the release of economic data that came in short of expectations. The final reading of Japan’s GDP showed growth of 0.7% in the second quarter of 2024, lower than expectations of 0.8% growth. This slowdown in economic growth added pressure to the Japanese yen, negatively affecting its value against most major currencies.
Japan’s current account posted a surplus of 2.80 trillion yen in July, beating expectations of a surplus of 2.08 trillion yen. Despite these positive figures, they have had no noticeable impact on support for the Japanese yen amid weak economic data. By 21:40 GMT, the US dollar was up 0.6% against the Japanese yen, at 143.1 yen, reflecting continued weakness in Japan’s currency. Yeh. The Australian dollar fell slightly by 0.2% to 0.6661 against the US dollar.
On the other and, the US dollar index rose 0.4% to 101.6 points, hitting a high of 101.7 points and a low of 101.1 points. Markets are also awaiting the release of important data on inflation in the US this week, including consumer and producer price indices. This data is expected to provide a glimpse into the future directions of the Federal Reserve’s monetary policy, as expectations indicate that the September meeting may see the first rate cut by the US central bank since the start of the monetary tightening cycle in 2022.
Contribute These expectations will enhance uncertainty in financial markets, significantly affecting the movements of global currencies. The current decline in the value of the Japanese yen indicates the effects of disappointing economic data on financial markets. Although Japan’s current account surplus was positive, weak GDP growth put negative pressure on the Japanese currency.
Markets React to Fed Rate Decision
Financial markets are in constant anticipation of changes in the Federal Reserve’s policy, as its decisions on interest rates can have broad effects on the global economy. When the Federal Reserve decides to adjust interest rates, financial markets respond quickly and unevenly based on investor expectations and the effects of the decision on the economy. If the Federal Reserve decides to cut interest rates, it could boost economic growth by reducing the cost of borrowing, stimulating investments and increasing consumer spending. This stimulus could lead to a rise in stocks in financial markets, as investors expect an increase in profits and the economic performance of companies. Also, the market could see a rise in the prices of goods and services, as individuals and companies enjoy High purchasing dura.
On the other hand, lowering interest rates may lead to a weakening of the local currency. Low interest rates make investments in the currency less attractive, which can lead to a depreciation against other currencies. This can lead to higher prices of imported goods, creating inflationary pressures in the economy. On the flip side, if the Federal Reserve decides to raise interest rates, it can have different effects.
Increased interest rates mean a higher cost of borrowing, which can lead to reduced investment and consumer spending. This slowdown could reflect negatively on financial markets, as stocks can underperform, and the market weaken. Raising interest rates can also boost the value of the local currency, making Exports are more expensive in global markets and affect the ability of companies to compete in international markets.
Factors affecting value of the yen in the coming period
The value of the Japanese yen is affected by several main factors that may affect its movement in the coming period. One of these factors is Japan’s internal economic situation. Economic growth, unemployment rates, and inflation levels all play an important role in determining the strength of a currency.
For example, if the Japanese economy suffers from a slowdown in growth or a rise in unemployment, this may negatively affect the value of the yen, as demand for the Japanese currency as a haven may decline .of. Another influential factor is the Bank of Japan’s monetary policy. Adjustments in interest rates, quantitative easing programs, or any other monetary stimulus by the Bank of Japan can have a significant impact on the value of the yen.
If the Bank of Japan decides to cut interest rates or increase stimulus programs, it could weaken the yen due to an increase in money supply. On the other hand, raising interest rates could strengthen the yen by attracting foreign investment. Geopolitical events also play an important role in determining the value of the yen. Political crises, trade disputes, or international tensions may affect the global financial market and lead to fluctuations in the value of the yen. In cases of geopolitical instability, the yen may become a safe haven, leading to its appreciation in value.
Changes in global economic policies also affect the yen. US Federal Reserve policy, global economic growth, and developments in commodity markets all play a role in determining the yen’s movement. For example, a rate hike in the United States may lead to a rise in the value of the US dollar against the yen, while expansionary policies in other countries may affect global demand for the yen.
