THE TAKEAWAY: Japan’s industrial production for December came in below expectations > Potential sign of weakening Japanese economy > Yen movement relatively flat following announcement, remaining dependent on risk sentiment and the government’s monetary policy.
Japan’s industrial production numbers for December came in well below expectations, but were mixed with regards to the previous month’s data. According to the Bank of Japan, production growth (MoM) incressed to 2.5% from -1.4% in November, but fell short of the 4.1% estimates. Meanwhile the growth in industrial output (YoY) declined by 7.8% during the month, failing to beat estimates of -5.6% and November’s production decline of -5.5% . The Yen, which has been a path of extreme depreciation since November, showed little movement following the data release.
While lower industrial production numbers indicate a weakening Japanese economy, the future of the currency appears tied to the country’s monetary policies and investor’s risk appetite. While Japan’s policy makers appear set on their goal of Yen deflation through monetary easing, investors’ risk-appetite may be more subject to change over the medium-term. Currently stuck in a risk-on mentality, investors continue to buy high-interest currencies, such as the AUD and NZD over low risk counterparts like the Yen. Should this trend endure, the Yen will likely continue to fall against its peers. Given the fickle nature of investor mentality, however, a reversal is always possible, capable of reverting demand towards safe haven currencies like the Yen and Dollar.
USD/JPY 6 Month Chart
(Created Using FXCM’s Marketscope 2.0 charts)