USD/JPY Struggling Near 103 post Japan Industrial Production Data

Talking Points

• Japanese manufacturing expanded output for thirteenth consecutive month, albeit at a slowing pace
• Industrial Production dropped the most since June
• Upcoming April sales tax hike may pressure consumer demand

The Japanese Yen remains within a range despite a set of weaker-than-anticipated PMI and Industrial Production figures. The Markit/JMMA Japan Manufacturing PMI came in at 53.9 in March down from 55.5 in February which leaves the index in expansionary territory for the thirteenth consecutive month. Heavy snow was cited as a reason for the slower expansion in output, while a rise in demand before the upcoming consumption tax hike may have had a positive effect. According to Amy Brown, an Economist at Markit, “Firms attributed this increase in output to last minute demand before the increase in the sales tax from 5% to 8%, which is due to be implemented in April this year.”

Japanese Industrial Production also disappointed relative to expectations having declined by 2.3% in February over the previous month, marking the steepest drop in eight months. This unexpected decline adds to concerns that the Japanese economic recovery could be derailed as the sales tax hike is put in place in April. The last sales tax hike in 1997 dampened demand and contributed to a prolonged downturn. The Bank of Japan has hinted at its commitment to increase its monetary easing policies if needed; a response that looks increasingly likely with this recent economic data release, and if the tax hike hits consumption harder than expected. Read more about the potential implications of the VAT increase on the Yen and get the weekly outlook for the currency here.

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USDJPY (5min Chart) – March 31, 2014 Created with FXCM Marketscope 2.0